El Taladro Azul Published Originally in Spanish in LA GRAN ALDEA
M. Juan Szabo and Luis A. Pacheco
After what was a turbulent electoral campaign, which included assassination attempts against Donald Trump and President Biden's withdrawal from the race to make way for Kamala Harris, election day in the U.S. finally took place without major setbacks. The sixtieth U.S. presidential election resulted in an overwhelming victory for Trump and the Republican Party. Trump obtained 312 Electoral College members (270 required to win). The Republicans took control of the Senate (52 senators), and although vote counting hasn't concluded, they likely will control the House of Representatives as well.
Donald Trump will find a very different world compared to what he faced in his first term, which will make the implementation of the announced policies difficult. For example, reducing debt becomes challenging if taxes at the same time are reduced; imposing tariffs on imports seems to go against reducing inflation. Perhaps for this reason, his first decision has been the appointment of his campaign manager, Susie Wiles, as his next Chief of Staff. Wiles, the first woman to hold this position, is known for her ability to organize efficiently, which would allow for a quick start of the new administration, in contrast to Trump's previous one.
Although the elections dominated the international environment this week, generating all kinds of speculation about how the new administration would implement its electoral promises, the oil market also had to manage other elements, both negative and positive: Hurricane Rafael caused production shutdowns in some offshore platforms in the Gulf of Mexico; the increase in crude oil and product inventories in the U.S.; interest rate reductions by the Federal Reserve and the Bank of England; Chinese government measures to ease local government financing tensions and stabilize economic growth; the near collapse of the German government; and increased geopolitical tensions, especially in the Middle East. All these events, together, caused oil prices to move within a relatively narrow range, around $74/BBL for Brent Crude.
Geopolitics
It's undeniable that the U.S. election results affect the development of geopolitical relations in all regions of the world, regardless of the persuasion or bias of the different actors. November 5, 2024, turned out to be a day of surprises, records, and many lessons for the two major parties vying for power; also, governments and politicians who hastily bet against the winning candidate have also had to readjust their positions.
What's undeniable is that the U.S. oil industry, which survived the uncertainties and inconsistencies of the Biden administration's policies, can now review its plans and make investment decisions on a firmer footing. This could be an important element in the global oil balance in the medium term.
However, the global market will have to wait to learn about the Trump administration's plans, which, for now, are based on campaign announcements that aren't entirely coherent and on speculations extrapolated from Trump's previous government.
A new administration could reformulate certain policies that would significantly impact international energy and geopolitical relations. Just as examples:
- Greater effort in enforcing OFAC sanctions, especially on Iran and perhaps Venezuela and Russia.
- More aggressive relaunching of the Abraham Accords as a mechanism to achieve sustainable peace in Arab-Israeli relations.
- Pressure on Russia and Ukraine to negotiate an end to the war. Probably with a redefinition of borders. The Kursk region could be the sticking point.
- Redefinition of relations with NATO member countries, at least in budgetary terms. Something Trump already promoted in his past term.
- Trade negotiations aimed at imposing tariffs, particularly, but not limited to China. The new president's vision of recovering manufacturing in the U.S. is a repeated message.
- Review or elimination of parts of the “Inflation Reduction Act,” which is perceived as an emblematic climate law of the outgoing government.
- Reduction of restrictions for qualifying for fossil fuel development project financing.
- Withdrawal From the Paris Climate Accord
These eight points could modify the boundary conditions of the Russia-Ukraine war and NATO's relations with that war, Israel's relations with its Arab neighbors, and the regional balance of power; it would also impact U.S. oil competition with OPEC+ producers, and energy security in the Western hemisphere, including Venezuela as a large base of recoverable resources.
Considering the U.S. election results, the Department of Justice, through the Prosecutor's Office, is reviewing all judicial cases involving the president-elect to withdraw charges. Furthermore, the Department of Justice claims to have thwarted an Iranian plot to kill President-elect Donald Trump in the weeks leading up to the election and filed a complaint with a federal court in New York City.
Israeli Prime Minister Benjamin Netanyahu fired his popular Defense Minister, Yoav Gallant, in a surprising move at a time when the country is involved in wars on multiple fronts across the region. The measure sparked protests across the country. The fracture between the two men begins with differences over future military activity in Gaza, and it's rumored that the final break occurred due to disagreements regarding the conversations the prime minister had with Donald Trump days before the election.
On the Ukrainian war front, the election result calls into question U.S. support for Ukraine and, ultimately, Kyiv's ability to reject the Russian invasion. Ukrainians are confident that Trump will support them once he fails to obtain Putin's cooperation to accommodate his requirements.
In any case, the Biden administration seems to have accelerated the delivery of already approved aid, and the Ukrainian army increased attacks against the Russians. Indeed, on Thursday the 8th, the Russians had one of their highest casualty days, both in human lives and loss of military equipment. Additionally, Ukrainian drones appear to have impacted warships stationed at the port of Kaspiysk in the Caspian Sea, as well as the Aleksin chemical plant in Tula Oblast, Russia, damaging a gunpowder production facility and paralyzing its production.
On the other side of the coin, President Zelensky denounced this week that Russia has used more than 800 guided bombs, 600 drones, and almost 20 missiles of various types this week. “That terror cannot be stopped with words alone,” Zelenskyy said.
Fundamentals
Once Hurricane Rafael, possibly the last of the season, devastated Cuba, complicating its already precarious energy situation, it made its way over the warm waters of the Gulf of Mexico; anticipating the hurricane strengthening to category 3, 17 oil and gas production platforms were evacuated, affecting about six hundred thousand barrels per day of oil equivalent (600 Mboed).
However, before ending up affecting the total production of the area, some five million and five hundred thousand barrels per day (5.5 MMbpd), Rafael took a more western trajectory, moving away from energy installations, heading towards Mexico; according to meteorologists, it is expected to weaken. On the other hand, in its weekly report, the Energy Information Administration (EIA) announced that U.S. commercial crude inventories had increased by two million two hundred thousand barrels (+2.2 MMbbls); product inventories increased by three million three hundred thousand barrels (+3.3 MMbbls), pushing crude prices downward.
The decisions by the Fed and the Bank of England to reduce interest rates again (-0.25%) are considered a response to the positive control of inflation and its path toward the expected 2%: largely, these reductions were already factored into prices.
According to Jerome Powell, the Federal Reserve Chairman, it's too early to be certain that the bank won't need to increase interest rates next year, although the Federal Open Market Committee believes it's unlikely. “We're not in a world where we can afford to rule things out a year in advance,” Powell said, “There's too much uncertainty in what we do.”
During the same event, a journalist asked if he would resign if Trump requested it, and he responded with a firm “No,” mentioning the Fed's independence from executive power granted by Congress in 1913. However, some analysts think Powell could be removed by the president, according to Section 242, Title 12, of the United States Code, or through a review of this independence by Congressional authority, where Trump might end up having control.
Meanwhile, the rest of the world continues. To reduce uncertainties in its economy, the Chinese government approved a $1.4 trillion plan over five years, which includes allowing local governments to refinance their debt.
Finance Minister Lan Fo'an detailed in a press conference the approval of up to eight hundred and thirty-nine billion dollars ($839 billion) over three years to help regional governments refinance their debt. Local governments will also have access to a separate quota of $558 billion in special local bonds over five years. The announcement was made after a five-day meeting of China's highest legislative body, the Standing Committee of the National People's Congress.
The refinancing of local governments' so-called “hidden debt” reduces interest costs, which will free up resources for other productive areas. This fiscal announcement is another disappointment for those expecting substantial direct stimulus, as the package equals 0.5% of current GDP. Additional measures, already identified, are being held in reserve to counter potential effects on growth marked by Trump's return to the White House.
In Iran, the government is confronting an imminent gasoline shortage despite currently applied rationing. Their refining system produces about one hundred thousand barrels per day (100 Mbpd) less than domestic market demand.
Europe isn't escaping the effects of the energy transition. In Germany, in an almost complete reversal of Angela Merkel's government's energy policy, the conservative German parties CDU and CSU have labeled the country's 2023 nuclear shutdown as “ideologically incorrect” and are promoting a feasibility study on reactivating inactive nuclear plants; this change could diversify energy sources and reduce dependence on Russian gas.
The European Union's designated Energy Commissioner, Dan Jorgensen, wants the bloc to end Russian gas imports before the 2027 target and will present a roadmap to end Russian energy imports during his first 100 days in office. Almost 3 years after the Ukraine invasion, 18% of gas used comes from Russia, the pipeline portion through Ukraine, and received liquefied gas is intended to be replaced by gas from the U.S.
Price Behavior
We've gone through a very busy week, with an avalanche of both positive and negative news for the oil market. The frequency and alternation of these catalyzing factors generated at least a dozen inflection points in the oil price trajectory, meaning even greater volatility than usual, moving within a range of around $3/BBL.
As things stand, Brent and WTI crude, at the close of trading on Friday, November 8, were trading at $73.93 and $70.38/BBL respectively, closing the week with a modest gain of just over 1% compared to the previous week.
VENEZUELA
Buenos Días, Mr. Trump.
The ink had not yet dried on the U.S. electoral records when Nicolás Maduro was already rushing to get to the front of the “congratulators” line. In a show of “Realpolitik,” or perhaps anxiety, the head of the Venezuelan regime sent congratulations to the American people and Donald Trump and extended an olive branch to the new president as a symbol of “good faith.” In reality, the purpose of this awkward genuflection is to try to offer some type of early signal related to Venezuelan oil. This could be used by the oil lobbying groups that will surround Trump in exchange for some recognition or extension of time beyond the January 10 deadline.
Judging by Trump's campaign messages, it can be concluded that, in general, Latin America represents a low priority in the president-elect's agenda, especially if he manages to reduce instability in Eurasia. In light of such a flagrant event as the electoral fraud perpetrated by the Maduro clan, and Trump's few statements about Venezuela, it's difficult to imagine that his administration considers Maduro as a legitimate interlocutor. It's still too early to know what the new administration's strategy will be.
The areas of potential cooperation between the two countries are illegal immigration control and the oil aspect, although it doesn't seem sufficient to erase how the Venezuelan regime failed to comply with everything agreed upon with the Biden administration. Seeking to clean its face before repeated accusations of human rights violations, the regime has released several political detainees.
Cases of bribery, money laundering, and misappropriation of public funds could represent insurmountable obstacles for potential relations with the Maduro clan, who commands an administration in a state of moral and ethical deterioration at levels difficult to imagine. Internal and external evidence is appearing that compromises the system in a much more generalized way than was thought.
For example, this week, Telefónica's Venezuelan subsidiary, a global telecommunications operator listed on the Spanish stock exchange, agreed to pay more than $85.2 million. This was to resolve a Department of Justice investigation into the bribery of government officials in Venezuela to receive preferential access to dollars. Also, in Spain, following a case of influence peddling, investigations revealed that the same people were part of an extensive corruption network related to the sale of Venezuelan crude to circumvent American sanctions and money laundering.
On the economic front, the regime faces lower collection by SENIAT and stable oil revenues, so public spending had to be limited, as well as crude-for-gasoline swaps. According to the Venezuelan Finance Observatory, the monthly inflation rate stood at 9.6%, compared to 3.4% in September.
Oil Operations
National production remained near the same levels as last week, eight hundred and fifty-three thousand barrels per day (853 Mbpd), geographically distributed as follows:
• West 198 (Chevron 91)
• East 138
• Orinoco Belt 517 (Chevron 112)
• TOTAL 853 (Chevron 203)
Chevron produced a total of 203 MBPD, which, after upgrading or dilution, adds to 230 MBPD of exportable crude. The company is moving the drill to the last well of the 17 they plan to drill.
PDVSA issued a statement to inform that the mixed company PetroCarabobo (PDVSA, Repsol, ONGC, Oil India and Indian Oil Corporation), in the Orinoco Belt, has put into operation six power frequency variators with which they were able to connect 12 crude oil wells. However, no increase in production is observed from that company.
Refining levels reached 192 MBPD of crude and intermediate products, with a gasoline yield of 66 MBPD and 78 MBPD of diesel, which includes the startup of the Cardón reformer, which had been paralyzed recently
.
Being very early in the month, no trends are evident regarding exports, except that, as last month, crude sales are being prioritized over gasoline swaps with Repsol, to maximize foreign currency income.
Accident in Eastern Venezuela
Mid-morning on November 11th, a major explosion was reported around the Punta de Mata Oil/Gas installations. Several injuries were treated in nearby clinics and, although it is unconfirmed, several people are missing. The accident forced the shutdown of several related installations, including gas and oil production and equipment processing feedstock in the stricken installation at Muscar. PDVSA's Muscar plant distributes gas to the company's oil fields for reinjection, and to processing plants for domestic consumption. It is not clear where and what the exact damage consists of, but it could seriously affect the domestic market methane distribution, propane, and butane availability. It could also impact light crude production, which could affect the blending of Merey-16 crude and the availability of feedstock for the Puerto la Cruz refinery.
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