THE MARKET SEEKS A NEW BALANCE

 El Taladro Azul

M. Juan Szabo [1] y Luis A. Pacheco [2]

Published  Originally in Spanish in  LA GRAN ALDEA

In a week not lacking in events, oil prices initially gained ground in response to Iran's attitude, which, despite having emerged battered from the brief military episode with Israel, maintained its belligerent discourse. The Iranian regime announced the suspension of cooperation with the International Atomic Energy Agency (IAEA) and doubled down on repression against its population to mitigate its current political weakness.

Meanwhile, although it was taken for granted that the advanced OPEC+ meeting during the weekend would approve a new production increase of 411 MBPD, a subgroup of eight cartel countries agreed to the rise of 548 MBPD starting in August. Concern about the feasibility of returning crude oil from the eight OPEC+ countries to the market is partially based on increases of no more than 300 MBPD observed in June, versus the announcements (see attached chart).

Other important events occurred after the early market closure due to the July 4th celebration in the United States. We highlight Ecuador's declaration of "force majeure," which is a strong blow to the Ecuadorian economy and global supply. Also, the approval in the U.S. Congress of the Budget Law, Big Beautiful Bill (BBB), and its subsequent signing by President Trump, with great fanfare, coinciding with Independence Day celebrations, will be a factor to consider. This law empowers the U.S. administration to advance much of its economic/political agenda. The reaction to these events will be reflected in prices during the week. However, many analysts are already starting to warn about the impacts of the growing budget deficit of the northern giant, while others dismiss them as alarmist.

FUNDAMENTALS

OPEC+ Agreement and Production Increase

Although predictable in its trend, the event that captured the oil market's interest had its element of surprise and, if you will, much bluffing. Eight oil-producing countries, OPEC+ members, agreed on Saturday to increase their joint crude production by five hundred forty-eight thousand barrels per day (548 MBPD) starting in August, on their path to dismantling their voluntary supply cuts, or what remains of them.

This cartel subgroup—Saudi Arabia, UAE, Iraq, Kazakhstan, Kuwait, Oman, Algeria, and Russia—agreed, according to a statement from the OPEC Secretariat, to increase their production by one hundred thirty-seven thousand barrels per day (137 MBPD) more than expected from previous announcements (411 MBPD). The statement from Vienna justifies the decision based on: "a stable global economic outlook and the current solid market fundamentals, as reflected in low oil inventories." As we have argued, dismantling cuts will take longer than the organization has indicated. It will require increased investments and opex observed so far only in Kazakhstan, Oman, and the UAE.

Global Strategic Reserves

Part of OPEC+'s view of strong market fundamentals comes from the status of strategic reserves in various countries. While China seems comfortable with its current strategic inventories, India, the world's third-largest crude oil importer, which depends on imports for about 85% of its daily needs, is considering building three new sites to boost its strategic oil reserves. India's underground storage currently holds a total capacity of 39 million barrels, enough for eight days of India's oil consumption, which is still much lower than the figures for the U.S. and China.

Additionally, the North American Strategic Petroleum Reserve (SPR) is uncomfortably low, after the Biden administration used it to try to prevent fuel price increases ahead of the elections. The Trump administration has stated that it is necessary to raise the current stored volume, 402 million barrels, which would only cover about 19 days of consumption.

Situation in Ecuador

On Thursday, Ecuador's state oil company, Petroecuador, declared force majeure over all its operations, including crude exports. This occurred after the suspension of pumping through the two trans-Andean pipelines and a drop in the Andean country's oil production. The state pipelines SOTE (Trans-Ecuadorian Pipeline System) and OCP (Heavy Crude Pipeline) suspended pumping operations preventively to protect their infrastructure from the effects of intense rains, which have accelerated erosion in the Amazonian province of Napo. River flooding has caused damage on numerous occasions since 2020.

Ecuador's crude production dropped to 332,128 barrels per day (331 MBPD) from the 464,634 bpd it recorded on Monday before the incident, according to a report from the Hydrocarbon Regulation and Control Agency. However, during the weekend, production had to be reduced even further, to about 268 MBPD, corresponding to an export reduction of about 200 MBPD.

U.S. Production

Meanwhile, the world's largest producer, the U.S., with its just over 13 MMBPD of crude production, does not tip the balance in any way. Drilling activity continues to fall this week; the Baker Hughes Report shows a drop of eight units, of which five correspond to lower activity in the Permian Basin.

Inventories and Refining

Regarding commercial crude inventories, the EIA reports an increase of 3.8 million barrels; however, this had no effect on oil market perception when it was realized that the increase was due to an import of 7 million additional barrels in the same week. Gasoline inventories increased, and distillate inventories decreased, in a typical seasonal balance and due to higher refining runs that approached 95% utilization of the refining fleet.

Trump's Energy Policy

It's important to mention that Trump's recently approved budget law opens federal lands and waters to oil and gas exploration, ordering 30 public auctions in the Gulf of America (formerly Mexico) in 15 years, and more than 30 each year on federal lands in nine states, giving the industry new access to Alaska. Given the maturation times of these activities, effects could be seen in the medium term, provided there are no changes by new administrations.

The law also lowers the royalties that producers are required to pay the government for extracting oil and gas on federal lands, which should encourage higher production. It remains to be seen whether these incentives, at current prices, can actually change the economic approach of oil companies.

Discovery in Norway

Equinor, the Norwegian state company, announced the discovery of a considerably sized deposit with its exploratory well Drivis Tubåen in the Barents Sea, in the Arctic region. The new discovery is located near the developing Johan Castberg field, facilitating joint development and possibly being a turning point for Norway's oil and gas future. The company states it expects to be able to add 250-550 million barrels of oil reserves.

GEOPOLITICS

Tensions with Iran

Iranian media reported that President Masoud Pezeshkian signed a law allowing him to suspend the country's cooperation with the International Atomic Energy Agency (IAEA). The measure comes amid growing tensions between Tehran and the UN nuclear watchdog agency and follows recent Israeli and American attacks against Iranian nuclear facilities. This position, perhaps inconsistent with the weakening of the country's defensive and offensive capacity, seems to be more oriented toward domestic politics and the military audience, seeking to close ranks against the "common" enemy.

BRICS Summit

The meeting of BRICS countries, composed of ten "emerging" economy countries, is beginning in Rio de Janeiro, but will no longer be the economic "carnival" that Brazilian President Lula da Silva expected. Expectations about the meeting's impact diminished upon learning that neither Xi Jinping nor Vladimir Putin would be present. President Putin limits his travels for obvious reasons: there is an international warrant against him for war crimes. However, the case of Xi Jinping, absent for the first time in 12 years, lends itself to various interpretations. The simplest is that rumors about his health are accurate or that Xi doesn't want to be eclipsed by Indian Prime Minister Narendra Modi, who will be the summit's guest of honor. It's also possible that the Chinese president wants to avoid irritating the volatile U.S. president, who is in the middle of complex trade negotiations with that country. The same applies to several countries that, according to President Trump, will receive letters starting this week indicating the tariffs imposed on their U.S exports.

Other leaders, such as Colombia's Gustavo Petro and Iran's Masoud Pezeshkian, chose not to attend, presumably due to domestic problems. The lack of diplomatic brilliance is a blow to President Lula da Silva, who wants Brazil to play a more important role on the world stage and is thinking about his future candidacy for a fourth term.

Middle East Conflicts

In the Middle East, Israel has continued its anti-Hamas and anti-Hezbollah campaign, finding Hamas enclaves in the south of the Gaza Strip and destroying a Hezbollah missile warehouse in southern Lebanon, around 3,000 devices. White House diplomacy and mediators from Qatar and Egypt say they are close to a ceasefire agreement that would include the release of kidnapped individuals who are still alive in the Gaza Strip.

War in Ukraine

On Russia's part, nothing has changed regarding the invasion of Ukraine, except that its income from hydrocarbon sales is falling sharply, and Putin feels the urgency to gain ground while he can finance it.

Kyiv was, this week, the target of the most significant Russian attack since the invasion began. Russia fired a record 539 drones and 11 missiles. Perhaps it was no coincidence that the attack occurred hours after a call between Trump and Putin, after which Trump said he was "disappointed" that the Russian president was not ready to end the war against Ukraine.

Moscow claims the war will continue as long as necessary to achieve its objectives. For his part, Zelensky urged international allies, particularly the U.S., to increase pressure on Moscow and impose greater sanctions. Later, on Friday, Zelensky and Trump held a phone conversation about the supply of American weapons: in an unusual development, the defense department had paralyzed weapons deliveries to Ukraine.

In the Russian capital, the surprising death of Andrey Badalov, 62, vice president of state-owned Transneft, the company that manages pipeline systems in the country, was announced; it was reported that he fell from the balcony of the apartment where he resided. Badalov's death adds to other deaths of oil executives under mysterious conditions, which is speculated to be an extreme way of maintaining discipline in the government apparatus.

Summary of the Geopolitical Situation

We could summarize the geopolitical situation as follows:

1. The relative pacification of the Middle East is moving in the right direction, and we think it could be used to pressure for more Abraham Accords, especially with Saudi Arabia and Syria.
2. The Russian invasion of Ukraine has no visible end, and its resolution is probably associated with a deep Russian recession.
3. The approval of the "BBB" Law and trade/tariff agreements with China and other countries like Vietnam and India may reduce the unease in capital and energy markets, mitigating the possibility of a global recession, although that remains uncertain.
4. Hydrocarbon supplies and their transport and delivery to users do not seem likely to have disruptions any time soon. – famous last words.
5. 
   

PRICE DYNAMICS

After the oil price dropped in the last week of June, losing the support generated by the geopolitical risk premium, the market began to recover upon observing a defiant Iran. The market also weighed signs indicative of solid fundamentals, particularly relatively low crude inventories.

However, mid-week, the media began to forecast that OPEC+ would approve a substantial increase of at least 411 MBPD starting in August, and that this, added to previous announcements totaling an opening of about 2.0 million barrels per day in just 5 months, would unbalance the market. Thus, prices eroded until the short commercial week stopped the process.

After a 2% gain mid-week, crude prices ended the week with a minimal gain of less than 1%: the Brent and WTI benchmark crudes were trading at $68.3/bbl and $66.5/bbl, respectively.

VENEZUELA

Venezuelan Economy: Recession à la carte

The Maduro administration's economic team, under the leadership of Vice President Delcy Rodríguez, apparently has a clear strategy, which is not so difficult when options become increasingly scarce.

The recipe is the same as in recent weeks: reduce public spending, preserve foreign currency for basic necessities, reduce consumption, keep the banking system cooperating, and let the exchange rate slide to try to reduce the gap with the alternative market. The only new thing is introducing cryptocurrency use, specifically USDT or Tether, a cryptocurrency backed mainly by dollars in a 1:1 ratio, which would facilitate obtaining and allocating foreign currency. The official exchange rate has surpassed 111 Bs./$, but has not ostensibly stopped the exchange gap.

The strategy seems to aim to provoke a recession by shrinking the economy to the level that oil-generated foreign currency and other sources can handle with minimal monetary financing, trying to prevent inflation from getting out of control, as it is at this moment. Despite no official publications, private sources calculate that annualized inflation is already approaching 200%.

Diplomatic Relations with the United States

As we reported last week, the Maduro administration appears to continue conversing with White House representatives, probably Richard Grenell. It is mentioned that Venezuela asked the U.S. to return 18 children separated from their families in deportation processes, who have become a propaganda weapon. In parallel, a group of American congressmen requested that Secretary of State Marco Rubio secure the release of 10 U.S. citizens unjustly detained in Venezuela. With the backdrop of continuous flights of deported Venezuelans arriving weekly at Maiquetía, it would seem that a bargaining between both parties, or perhaps something more, could occur, which would undoubtedly favor the regime.

However, the diplomatic waters separating the parties have become murky due to a series of unrelated factors: the declaration as "persona non grata" of the UN High Commissioner for Human Rights, Volker Türk, demanding his withdrawal from Venezuela, in response to the publishing of a devastating report on the deterioration of human rights in Venezuela, documenting torture, forced disappearances, and political repression; the political support given by the regime to Iran after the American bombing; the inauguration, perhaps only symbolic, of the Russian factory for Kalashnikov rifle ammunition; and the capture at sea of several drug shipments originating in Venezuela.

Political Situation

Politically, it is striking that several members of UNT, the party of former governor Rosales, and of Union y Cambio, the party of former governor Capriles, left that "opposition" tent and appeared as candidates for the official party, PSUV, in municipal elections, confirming the opportunism of that opposition of convenience.

Oil Operations

In oil matters, things are simplified, which does not necessarily mean improvement. Practically, there is only one export destination: "all shipping leads to China", and one price: $31.7/bbl - based on our internal calculations. Crude production was slightly affected, but the Cardón refinery and the PetroPiar upgrader were started, although the latter could not be fully stabilized.

As we have been announcing, June is a crucial month for oil operations in the year’s second half.

Production by Regions

Crude production during the last week averaged eight hundred thirty-nine thousand barrels per day (839 MBPD), geographically distributed as follows:

Area	MBPD
West	209
East	120
Orinoco Belt	510
TOTAL	839

Refining and Petrochemicals

National refineries processed 193 MBPD of crude and intermediate products, with a yield of 65 MBPD in gasoline and 68 MBPD in diesel. There was talk of a fire at the Amuay refinery, but the characteristics and seriousness of the event could not be verified.

Methanol plants are operating in the petrochemical sector. At Fertinitro, one ammonia and urea train is operating, and the second is in startup preparations, while the Superoctanos plant is out of service. The pressure of gas supplied to the José complex remains low, partially affecting plant performance.

Exports

June exports closed with crude exports of 590 MBPD sent entirely to China through the traditional mechanisms for transporting crude sanctioned by OFAC: 483 MBPD correspond to Merey-16 shipments, 90 MBPD to Boscán crude, and 17 MBPD from Corocoro segregation.

Also exported were 76 MBPD of products, mainly residual fuel, all sent to the Far East, except for a minor shipment to Cuba.

CITGO

In the state of Delaware, the special master supervising the auction of shares of PDV Holdings, indirect parent company of CITGO Petroleum, recommended the $7.38 billion offer from a unit of Gold Reserve (GRZ.V), a mining company listed in Toronto, as the preliminary winner of the auction organized to pay creditors for debt defaults and expropriations by the Hugo Chávez and Nicolás Maduro administrations.

If the offer is approved, the proceeds from the PDV Holding auction would be sufficient to compensate 11 of the 15 creditors on the court-approved list. In any case, some experts expect the process to encounter new arguments to resolve, including those that CITGO and PDVH lawyers continue to raise. New offers or appeals from creditors who would not benefit from the special master's recommendation are not ruled out.

 

[1] International Analyst [2] Nonresident Fellow, Baker Institute

THE CALM AFTER THE STORM

 El Taladro Azul

M. Juan Szabo [1] y Luis A. Pacheco [2]

Published  Originally in Spanish in  LA GRAN ALDEA

THE CALM AFTER THE STORM

In a region that has historically been the catalyst for more than one oil crisis, the market looked at a new one that, for the moment, seems to have taken a step back. Both Israel and Iran have avoided damaging the region's oil facilities, at least for now. The much-analyzed threat of a closure of the Strait of Hormuz, which would be an event that would shake the markets, does not seem to be on the table today, as it does not favor either party. On one hand, Iran needs to preserve its oil exports to avoid further deteriorating its economy, already hit by economic sanctions. On the other hand, the U.S. and Israel are trying to prevent a major accident that would break the oil supply chain, which would be reflected in a price escalation. This would affect the unstable world economy and destabilize Trump's fundamental policy of keeping energy prices low as protection against inflation and paving the way to reduce the service of American debt.

A short-duration escalation

The U.S. attack on nuclear facilities in Iran raised alarm signals in the market. However, that perception of risk was diluted when Iran's retaliation materialized as a modest attack on an American base in Qatar, which was previously announced. The 14 missiles launched were seen more as a symbolic response, and the parties were not seeking to damage the vital oil infrastructures of the region. In this way, geopolitical risk evaporated with the same speed that it had emerged, and oil prices fell to the levels before the start of the attacks on Iran's nuclear facilities by Israel.

Market focus shift

The oil market then turned to expectations of lower oil demand growth due to the global economic slowdown and the announcement of increased supply by OPEC+. However, we believe that both the predictions of lower demand and the announcements of greater supply by OPEC+ lack the certainty that the market has assigned to them.

FUNDAMENTALS

Demand and supply indicators

Demand and supply figures give indications of growing demand. The increase in oil purchases suggests greater demand, as is the case in Japan, China, and the U.S., and so does the reduction of inventories. On the supply side, the production opening announced by OPEC+ is falling short, and U.S. oil production is on a plateau, pointing to a potential deficit. Despite these signals, the market returned to the same price levels as before the Israeli bombing, considering that the strength of the fundamentals is ephemeral, or perhaps as an over-correction.

U.S. production

Indeed, U.S. production is stable at just over 13 million barrels per day (13 MMbpd), with indications of decline due to low replacement effort. According to Baker Hughes' weekly report, drilling activity was reduced by seven units, five onshore and two offshore. According to our estimates, the number of crews performing hydraulic fracturing has remained relatively constant due to the greater use of "refracturing," an operation used to extend the useful life (final recovery) of shale oil wells.

Crude inventories

Similarly, the Energy Information Agency (EIA) in its weekly report highlighted a reduction of 5.8 million barrels in commercial crude inventories in the U.S., despite having imported 3.1 million more barrels of crude than the previous week. This is the second consecutive material reduction in as many weeks and seems to indicate a trend, especially if we consider that during this period, there has been a delay in the scheduled replenishment of the Strategic Reserve (SPR) of around 7 million barrels. The current inventory level is lower than the lower limit of the 5-year range. On the other hand, gasoline inventories also decreased by 2.1 million barrels, despite the increase in refinery runs.

OPEC+ production

Unofficial sources revealed that OPEC+ would be about to agree on another increase of 411,000 barrels per day of production for August; with that increase, the total increase announced this year would reach 1.8 million barrels per day. However, the cartel has not yet materialized the announced production volumes because some members compensate for previous overproduction, and others need more time to materialize the opening. The reality points to the fact that the production capacity, theoretically closed, is not as available as announced. On the contrary, those barrels require time and investment to restore them to their original state. We estimate that by the end of the year, the incremental production from OPEC+ countries will not even reach half of the announced volumes.

GEOPOLITICS

Reduced risk in the Middle East

The probability that warlike events, particularly in the Middle East, will derail the normal functioning of the hydrocarbon industry has been considerably reduced. Just a few days ago, the bombings and reprisals between Israel and Iran, added to the U.S. intervention in the conflict, brought the risk premium to high levels, reflected in oil prices that pointed to $80/bbl in terms of Brent crude. However, the ceasefire between Israel and Iran, achieved through the mediation of the U.S. and Qatar, and the absence of subsequent reprisals, have essentially diluted the geopolitical risk premiums and a return of prices to pre-12-day war levels.

Weakening of Iranian power

The relative calm in the region and the apparent ease with which a ceasefire was achieved have their justification in some regional developments shaping the current balance of powers in the Middle East. Iran's economic and military power has diminished considerably, this being the reason for its poor response to Israeli and American attacks. However, its internal propaganda tries to convince its population that they defended themselves successfully and forced the enemy's surrender with their missile superiority.

The reality seems to be that the elimination of the leaders of the Revolutionary Guard and a portion of the scientists who managed Iran's nuclear program, as well as the near elimination of its anti-aircraft defense and the significant damage to its nuclear and missile infrastructure, undermined, at least for now, its regional power.

Weakness of Iranian allies

Iran's regional power had already been weakened with the overthrow of Bashar al-Assad in Syria, its great regional partner, and the considerable weakening of its terrorist tentacles distributed throughout the region. The most notable case is that of the terrorist group Hamas. Without commanders, deprived of much of its tunnel network and uncertain of the support of its main ally and supplier, the group is struggling to survive in Gaza against rebel local clans and relentless Israeli military pressure.

Hezbollah, in Lebanon, has also been decimated, and in the case of the Houthis in Yemen, the situation is not so clear. The confrontations with Saudi Arabia, the repeated attacks by the U.S., the United Kingdom, and Israel, and the reduced support from Iran have severely reduced their ability to keep ships from navigating the Red Sea.

Opportunity for the Abraham Accords

This regional situation seems conducive to the U.S. insisting on progressing with the Abraham Accords, especially between Saudi Arabia and Israel. After all, the Israeli initiative against Iran has enormously benefited the Arab countries of the Persian Gulf.

Russia-Ukraine conflict

On the Russia and Ukraine front, violence shows no signs of abating, as international peace efforts led by the U.S. have not produced any progress to date. Two recent rounds of talks between the Russian and Ukrainian delegations in Istanbul were brief and did not lead to progress toward reaching an agreement.

Long-range drone attacks have been a hallmark of that war. The race by both sides to develop increasingly sophisticated and deadly drones has turned the conflict into a testing ground for new weapons. Russian forces have been slowly advancing at some points on the ground battle front line. However, their incremental advances have been costly in terms of troop casualties and loss of military equipment. The new attacks follow comments by President Putin on Friday that Moscow is ready for a new round of direct peace talks in Istanbul. Meanwhile, Ukrainian President Volodymyr Zelensky was attending the NATO summit in The Hague, seeking to secure the support of that bloc.

Russian economic crisis

The real headache for the president of the Russian Federation is the deterioration of the economy. Although Putin tried to give a positive message in his intervention at the 2025 St. Petersburg International Economic Forum, in the corridors, the conversations centered on an imminent banking crisis due to high inflation; attempts to control with very high interest rates have triggered delinquency. The bulky budgets to finance the war, and the limited income from hydrocarbon sales due to sanctions, make up a toxic recipe for the Russian economy.

U.S.-China relations

According to Treasury Secretary Scott Bessent, the U.S. and China appear to have settled their differences regarding shipments of rare earth minerals and magnets to the U.S.. This resolves a dispute that stalled a trade agreement reached in May. China had suspended exports of a wide range of critical minerals and magnets, disrupting supply chains central to automakers, aerospace manufacturers, semiconductor companies, and military contractors worldwide. Capital markets received the announcement well, which extended their gains and almost completely recovered the drop experienced at the beginning of the year.

U.S. fiscal policy

Additionally, in the U.S., the approval process for the budget law proposed by Trump and approved by the House of Representatives in May faces challenges to be approved in the Senate at the speed that the president would like. The Senate approved the opening of the debate on the bill, which contemplates about 4 trillion dollars in tax cuts, on Saturday after convincing some Republicans who questioned the initiative. With 51 votes in favor and 49 against, the Senate endorsed opening the formal debate on the plan, which causes controversy because it expands the tax cuts from Trump's first term (2017-2021), increases spending on defense and immigration control, and reduces assistance programs such as Medicaid and food stamps.

PRICE DYNAMICS

Focus on fundamentals

After diluting the geopolitical risk premium in oil prices, the oil market focused on the global growth rate and its effect on oil demand, adding the production increase announcements made by OPEC+. At least for now, it does not factor in the resilience of demand and delays in the materialization of supply, both from countries in the OPEC sphere and non-OPEC countries.

Upcoming key events

Now that the Middle East is relatively quiet, some key events are coming that will be reflected in prices: the OPEC+ meeting on July 6, the deadline for Trump's tariff war, and the approval of the budget law in the U.S. Senate. Surveys conducted by Reuters of options traders foresee a 60% probability that a barrel of Brent will average between 60 and 70 USD in the next three months.

Weekly close

Prices closed the week with a substantial loss of almost 12% compared to the previous week. Thus, at market close on Friday, June 27, the Brent and WTI benchmark crudes were trading at $67.77/bbl and $65.52/bbl, respectively.

VENEZUELA

Economic myopia

The Venezuelan regime is focused on implementing its economic model to face U.S. economic sanctions while promoting municipal elections to finish taking over political spaces at all levels. However, the municipalities will not significantly impact the effort to rescue the economy.

Structural political crisis

The situation in Venezuela continues to be marked by a profound structural crisis, both politically and economically. Politically, the Maduro administration faces accelerated decline. As a result of the handling of elections in general, particularly the presidential elections of July 2024, the regime has lost national and international legitimacy and is dealing with internal fractures and diplomatic isolation. The political opposition, particularly that led by Edmundo González and María Corina Machado, has strong popular support, estimated at more than 70%. Still, its performance continues to be hampered by the policy of repression and fear that has gone so far as to prohibit speaking or publishing information that is not to the regime's liking.

International pressure and maximum pressure policy

The U.S. and other international actors have intensified their pressure, calling the regime a regional threat, and have questioned the validity of the presidential and regional elections. The Trump administration has applied the maximum pressure policy and cut the umbilical cord that fed the country with foreign currency from oil sales to the American market. The incremental oil activity, licensed by the Biden administration, had helped the economy show signs of recovery during 2024, but from early 2025, a new contraction is forecast.

Current economic situation

The regime has reduced public spending to survive this contracting economy, impacting consumption. Even so, foreign currency income has had to be supplemented with monetary financing from the BCV. The exchange rate continues to weaken: at the week's economic activities close, the official rate exceeded Bs 107/$, while the "unnameable," according to international portals, is around Bs 146 Bs./$. Annualized inflation, estimated by independent analysts, is in the order of 200%.

Ineffectiveness of anti-sanctions measures

The regime's anti-sanctions measures have been the equivalent of band-aids. The productive participation contracts (CPP) have not shown significant results, and oil exports, concentrated towards China, generate income at a discount relative to the market price, and with collection problems.

Hopes for negotiation

In any event, the Maduro administration has not lost hope of achieving political results that help this critical situation, through negotiations with the White House. As is logical, they think that developments in the Middle East provide an opportunity, and they have undoubtedly noted what appears to be an internal struggle between MAGA forces and their opponents within the Trump administration.

The mention that China could continue buying Iranian crude, that contacts between the U.S. and Iran were reestablished after the ceasefire, and Secretary of State Marco Rubio's hesitant position on imposing incremental sanctions on Russia are positive signals for the Venezuelan regime, which maintains the flow of deported emigrants in the hope of achieving more openness in the maximum-pressure siege.

OIL OPERATIONS

Results under maximum pressure

At the close of the first month under the sanctions of the Trump administration's maximum pressure policy, oil results align with most of the predictions aired when the end of the OFAC licensing era was known. The short duration of elevated prices due to the war ended the hope of obtaining higher oil revenues.

Crude production

Crude production during the last week averaged 843 MBPD, relatively unchanged, distributed geographically as follows, in MBPD:

Area	Mbpd
West	211
East	120
Orinoco Belt	512
TOTAL	843

National refining

The shutdown of the Cardón refinery (electrical blackout) and the PetroPiar upgrader (furnace fire) have affected June's operational results. National refineries processed 166 MBPD of crude and intermediate products, with a yield in terms of gasoline of 57 MBPD and diesel of 63 MBPD.

Petrochemical sector

In the petrochemical sector, the methanol plants are operating. At Fertinitro, an ammonia and urea train is operating, and Super-Octanos is out of service; however, the pressure of the gas supplied to the complex was reduced, partially affecting the plants' results.

Exports

Exports in June appear to point to about 570 MBPD. Nine crude tankers were dispatched in the first 26 days, and at least three more are expected to dock and load before the end of the month.

CITGO

Auction process

In Houston, it was announced that Black Lion Citgo Group, a consortium led by private equity firm Black Lion Capital Advisors, had submitted an offer of $8 billion (in cash), as part of the auction of shares of PDVSA Holding (CITGO's parent company) ordered by the Delaware court. This is an additional step in this process that began more than five years ago due to debts incurred during the Chávez and Maduro administrations. Legal experts still forecast a long and winding road before the auction materializes, despite this latest offer at least reflecting the asset’s potential value a little better.

Favorable decision in New York

In New York, a court decided in favor of PDVSA and PDV Holdings in an alter ego case sued by a vulture fund. Although this decision does not influence what has already been judged in Delaware, it is a favorable precedent for future cases.

[1]: International Analyst [2]: Nonresident Fellow, Baker Institute

 

TRUMP SEEKS TO SHORTEN TIMEFRAMES IN THE IRAN-ISRAEL CONFLICT

El Taladro Azul

M. Juan Szabo [1] y Luis A. Pacheco [2]

Published  Originally in Spanish in  LA GRAN ALDEA

 

The development and outcome of the open military confrontation between Israel and Iran, inherently difficult to predict, takes a new path now that the White House has decided to intervene militarily in Iranian territory, under the argument that it seeks to accelerate a negotiated peace. In a region that concentrates a high proportion of the world's hydrocarbon industry, the surprising but not unexpected Israeli air attack and Iranian response are not minor events and raise the risk that an "accident" could trigger escalation in a traditionally volatile region. The world's most important oil facilities are directly or indirectly exposed to being affected by the conflict, which can shake the global energy market.

US Military Intervention

During the week, President Trump threatened the regime of Ayatollah Ali Khamenei with reprisals if it did not agree to his demands to negotiate a nuclear agreement. The threats were accompanied by granting a two-week deadline for Iran to abandon its uranium enrichment program, raising doubts about the real intentions of the US.

In what is already almost a standard tactic of the White House occupant, Trump ignored the deadline he established and surprised with military intervention in the conflict. On Saturday, the US Air Force attacked three targets of Iranian nuclear infrastructure: Fordow, Natanz, and Isfahan, with the declared objective of forcing negotiation and, it is speculated, a change in the Iranian regime.

Impact on Oil Markets

All these variables have elevated the price and volatility of oil to their highest levels since the beginning of the year, and the effect of the US incursion is already beginning to materialize in crude oil prices at the start of the new week, faced with threats, this time, from the Iranians.

All other factors that typically move market actors have been relegated to second place this week. Chinese demand, the reduced effect of OPEC+ production increases, falling crude oil inventories in the US, and Federal Reserve decisions became merely sterile statistics for oil market purposes. Oil analysts transform, at least for now, into military observers.

Geopolitics

Impact on Oil Infrastructure

From the perspective of global hydrocarbon production and supply, the war between Israel and Iran, contrary to past Middle East conflicts, has not had serious repercussions so far. Destruction in oil infrastructure, due to missile exchanges and air bombardments, is limited to damage to facilities at a refinery associated with the South Pars gas and condensate field in Iran, and to an Israeli refinery in Haifa. Even the Tamar gas field, in Israeli territorial waters, has been reopened to supply natural gas to Egypt. Nevertheless, the situation has increased tanker freight prices, affecting economies globally.

Pressure on Maritime Routes

The US has pressured Yemen's Houthis with commercial sanctions and bombardments of their missile launch facilities, to maintain free passage through the Bab el-Mandeb strait and as a precaution against any potential closure or limitation of passage through the Strait of Hormuz; a possible, though currently improbable, reaction to the US incorporation into the conflict.

Damage to the Iranian Nuclear Program

The war enters its second week, and damage to Iran's nuclear program is significant. Still, its capacity to reestablish its nuclear aspirations, which would be naive to think they will abandon, is unknown. Much of the military command appears to have been eliminated, and as part of the attacks on Natanz and Fordow near Qom, much of the key scientific personnel of the nuclear program as well. Ayatollah Ali Khamenei is under protection and supposedly has named his successor in case he is assassinated.

Fordow Operation

A key element in the US operation was the destruction or disabling of facilities at Fordow, located near the city of Qom, equipped with five tunnels and hidden inside a mountain 60 meters deep, and which, according to the Israeli government, stores the enriched uranium necessary to manufacture nuclear weapons. The US used in its Saturday attack its "Massive Ordnance Penetrator" (MOP GBU-57), a projectile capable of drilling through mountains and penetrating more than 60 meters before exploding. This weapon presumably would allow destroying those underground facilities, though beyond White House announcements, the extent of damage caused remains to be confirmed.

Damage in Israel

In Israel, despite more than 90% of missiles and drones launched by Iran having been destroyed, some caused significant damage, as is the case with the Weizmann Institute. Although no one died in the attack, several campus laboratories were destroyed, ending years of scientific research. At the same time, Israeli scientists were reminded that they are also in the crosshairs of the conflict.

Diplomatic Situation

There has been no progress on the diplomatic front. The summit held in Geneva with Iran's foreign minister and European leaders yielded no signs of advancement, and the UN Security Council meeting ended with Iran and Israel exchanging insults and without any conclusion.

Subsequently, President Trump dismissed the European initiative, suggesting that a diplomatic solution would require US intervention. That was when he opened the two-week deadline for negotiations with Iran, which was later bypassed. Markets now anxiously await Iran's response to the US attack.

Russia-Ukraine Conflict

On the Russia/Ukraine front, after concluding an exchange of bodies of soldiers fallen in combat, the parties continued exchanging drone attacks, with Russia taking advantage of summer and the presence of additional troops from North Korea. Russia expects an agreement on the date of the subsequent peace talks with Ukraine next week. However, it wouldn't be strange if Putin uses the US attack on Iran as a strategic piece.

European powers continue to consider Russia a potential enemy and are about to impose new incremental sanctions, starting with the prohibition of reactivating the "Nord Stream" gas pipelines. Putin seems more interested in intervening as a mediator to defend his Iranian partner than resolving his own war. He probably considers that after the fall of his partner in Syria, the loss of Iran would be a hard blow.

Regional Geopolitical Strategy

Some geopolitical strategists suggest that the underlying objective of US policy is to pacify the Middle East, establish the "economic corridor" India—Middle East—Europe, a supply chain with enormous potential, and constitute a strategic response to China's initiative called "Belt & Road."

Fundamentals

Federal Reserve Monetary Policy

Despite being overshadowed this week, oil market fundamentals generally showed positive readings regarding market health.

The Federal Reserve (FED) decided not to move interest rates in the US, although the White House has expressed interest in a reduction, which would have provided relief in debt service. The FED pays more attention to the future of inflation due to energy price increases than employment figures and generally lower economic growth in America.

Oil Financial Discipline

Despite the increase in oil prices, US oil companies maintain their financial discipline policy for eminently geopolitical reasons. Operational activity remains stagnant in terms of production. They continue to reduce activities to generate new production potential.

Crude Oil Inventories

The Energy Information Administration (EIA) published its weekly statistics, revealing an unusual fall in commercial crude inventories (-11.4 million barrels). An abnormally large drop that will need to be analyzed later, based on indicative trends over several weeks.

OPEC Production

Another relevant element for supply levels experienced in recent weeks is the increase in OPEC+ crude oil production, in compliance with their announcements. Considering announcements for April, May, June, and July (see attached chart), compliance looks meager, especially if we take into account that Kazakhstan has maintained its overproduction essentially constant.

European Energy Policies

In Europe, while Norway is deploying a high level of oil activity, including exploratory, the United Kingdom government has issued a new set of strict environmental standards for new fossil fuel projects. The standards require that so-called Scope 3 emissions (those produced in the use of extracted fuels) be included in the environmental impact assessment of any project. This is an example of ideology imposing itself on the reality of energy supply.

Asian Demand

On the demand side, June is shaping up as crude oil purchases near May levels for both China and India, representing a recovery compared to the beginning of the year.

Price Dynamics

Crude oil prices moved to the rhythm of the risk of interruption in the hydrocarbon value chain, in a wide range, between $70 and $79/BBL. At the end of the week, a modestly bearish trend was experienced after the announcement that Trump would delay the deadline for possible US participation in the conflict. In any case, prices closed the week with a gain of more than 3% compared to the previous week, placing themselves at February 2025 levels. Thus, at market close on Friday, June 20, the Brent and WTI benchmark crudes were trading at $77.01/bbl and $73.84/bbl, respectively.

At the close of this note, and after the US attack on Iranian nuclear facilities, prices seem to be awaiting a possible Iranian reaction, and with a slight downward trend. And in an attention-grabbing statement, President Trump "ordered" oil companies to keep prices low.

VENEZUELA

A Confidential Economy

It is said that having access to foreign currency is the most challenging thing in Venezuela. However, obtaining official statistics is even more difficult because they are not published. Unofficial figures, the result of private research, have also disappeared amid the regime's repressive wave against analysts and economists; the regime seems to have decided to ban thermometers to avoid recognizing the fever.

Economic Indicators

Economically, we know, through the Central Bank of Venezuela (BCV), that the official exchange rate is close to 105 Bs./$, a depreciation of more than 50% compared to the beginning of this year. The parallel market rate has disappeared from public spaces, although foreign portals estimate it at 142 Bs/$. The inflation rate is not published either, but the equation: foreign currency shortage + monetary financing + Bolivar depreciation, can only result in growing inflation and negative economic growth.

Benefits of Oil Prices

The only aspect that has given a slight respite to the economy is oil prices, which have increased for geopolitical reasons. In June, the weighted prices of Venezuelan exports rose to almost $33/BBL. According to our calculations, for each dollar increase in the Brent benchmark crude price, Venezuela should receive, assuming total transparency in collection, an additional $0.5/BBL. In other words, Brent rising from $70 to $77/BBL would result in an extra $3.5/BBL, around $70 million monthly.

Anti-Sanctions Model

By June, the "Anti-Sanctions Model" is in operation. It is based on:

• Maintaining exports near the same pre-June level.
• Reduction of public spending to limit monetary financing.
• Foreign currency for delivery destined for "first necessity" activities.
• Structuring an alternate collection system, with emphasis on barter and cryptocurrency.

With this defensive strategy, Nicolás Maduro, Delcy Rodríguez, and the BCV hope that economic stagnation does not become chronic.

International Political Position

Politically, after Israel attacked Iran, Nicolás Maduro ratified his support and solidarity with Iran. In a televised act, he said: "We firmly ratify our absolute solidarity with the people of the Islamic Republic of Iran, with the Palestinian people, with the Syrian people, with the Lebanese people, with the Yemeni people and with all Muslim peoples and Arab peoples."

Oil Operations

Production Scheme

In this first month of the new scheme, which we call the "Anti-Sanctions Model," PDVSA focused on producing through joint ventures (JV) and production participation contracts (PPC) with private companies willing to maintain activities without OFAC authorization from the US. Exports concentrated on sending crude and products to China through mechanisms we have already analyzed in previous writings.

Crude Oil Production

Crude oil production during the last week averaged eight hundred forty-seven thousand barrels per day (847 Mbpd), distributed geographically as follows, in MBPD:

Area	Mbpd
West	213
East	121
Orinoco Belt	513
TOTAL	847

National Refining

National refineries processed 216 MBPD of crude and intermediate products, yielding 80 MBPD in gasoline and 71 MBPD in diesel.

Exports

June export figures point to a monthly average of about 570 Mbpd. Seven tankers were dispatched in the first 20 days, and at least five more are expected before the end of the month. All shipments are destined for the Far East except one for Cuba.

Petrochemical Sector

Methanol plants in the petrochemical sector operate at almost 86% of their capacity. At Fertinitro, one ammonia and urea train operates, and Superoctanos is out of service.

CITGO

On Friday, OFAC published General License 5S. Through this license, CITGO assets are protected from the holders of the so-called PDVSA 2020 bond, who are still awaiting a decision from a court in New York. Meanwhile, the auction process for CITGO assets in Delaware court continues on its path of advances and setbacks; an announcement from the case judge is expected in the next two months.

[1] International Analyst [2] Nonresident Fellow Baker Institute