El Taladro Azul Published Originally in Spanish in LA GRAN ALDEA
M. Juan Szabo and Luis A. Pacheco
Just a few weeks ago, at the end of 2024, many oil market analysts, primarily investment banks like JP Morgan, Citi, Wells Fargo, and Goldman Sachs, revised their price forecasts downward, predicting an oversupplied market in late 2024 and throughout 2025. Their analysis logic was based on weak demand due to China's economic decline and energy transition. Additionally, they factored in significant production growth from countries outside OPEP+, whose strategy of maintaining cuts during the first quarter of 2025 confirmed this analysis.
It only took the mention of potential increased sanctions on Russia by the US and the presence of cold fronts in the northern hemisphere for the apparent robustness of this analysis to falter. While it's unsurprising that many analysts now view 2025 with optimism and are announcing much higher price predictions than a couple of months ago, we shouldn't place too much confidence in these changing winds. After all, the truth is that the price increase so far this year places prices near last year's average, mainly because neither global demand has decreased nor have the barrels from the mentioned countries appeared, except for Canada and Argentina, at least in the last months of 2024.
Crude oil prices have strengthened, reaching their highest levels since early October 2024. The price recovery is fueled by low temperatures and the effect of the latest sanctions from the Treasury Department, which has been more active and aggressive in the last month and a half than in the previous 46 months. Thus, the change in perception of fundamentals and geopolitical effects have contributed to January's correction.
Fundamentals
Two components, representing more than half of global crude production, have helped stabilize the supply side: OPEP+ discipline and US production.
OPEP+ has stayed close to the established quota for the cartel regarding crude placed in the market, though with differences in expected volumes from some countries. The slight overproduction from Saudi Arabia, UAE, and Kazakhstan has been more than offset by production reductions or capacity to place produced barrels in the market from Russia, Iraq, Iran, and Mexico. New sanctions against both countries' dark fleet ships and related shipping companies have affected Russia and Iran. Meanwhile, Iraq has had to reduce production in the Rumaila field, the country's largest, due to reduced electricity generation from insufficient natural gas from neighboring Iran.
The US, for its part, has maintained constant production, according to the Energy Information Administration's (EIA) weekly report, at thirteen million five hundred thousand barrels per day (13.5 MMbpd), relatively constant over the last 6 months. In contrast to this production profile, rig utilization, according to Baker Hughes' weekly report, fell by five units, distributed between gas and oil. In the same report, the EIA reported another drop in commercial crude inventory levels related to lower imports and reduced refining runs. However, gasoline inventories continued to rise, partly due to the closure of two pipelines in Los Angeles due to power outages related to forest fires.
The forecasted increases in non-OPEP countries for late last year and early 2025 have yet to materialize. Most of these increases are scheduled for the last three quarters and collectively offset demand growth, which most forecasters now, except for the International Energy Agency (IEA), place at one million five hundred thousand barrels per day (1.5 MMbpd).
Additionally, short-term elements, such as arctic temperatures experienced in the northern hemisphere, have supported gas and fuel demand. In the longer term, energy requirements for data centers and AI will boost demand, especially for gas and nuclear energy. However, this will also be reflected in oil prices.
We are in a seller's market, and the probability of it remaining that way is increasing, or at least that's how the market perceives it.
Geopolitics
Although Donald Trump hasn't yet been sworn in as US president, he has opened several surprise boxes. The president-elect has insisted that the Panama Canal should return to the US. He also stated that Greenland should become part of his country and suggested that Canada should be the 51st US state; to not give his southern neighbor a free pass, he announced that the Gulf of Mexico would be renamed the Gulf of America. As expected, all four countries reacted negatively, but the warning flag was raised, although it's difficult to know if it's anything more than fireworks.
According to Trump, these territorial changes are necessary for "America's defense" and to curb Chinese/Russian imperialism. He also proposes that NATO countries substantially increase their defense budgets, an aspiration he inherited from his previous administration.
The mere presence of Trump and his programs to return the US to a supposed past glory has made the Biden administration, in its final moments, make hurried decisions that it hadn't made for almost 4 years. In particular, the outgoing administration has issued new regulations to limit fossil fuel development, immigration, and international policy, particularly in sanctions. The latter has the potential to affect the oil trade materially.
For example, it's reported that the Shandong Port Group, operator of key oil ports used by China's independent refineries, in response to US sanctions, has banned access and services to tankers sanctioned by the US Treasury. The ports where the ban is in effect are Qingdao, Rizhao, and Yantai, on China's east coast, which are key crude import sources for independent Chinese refineries, known as teapots, buyers of sanctioned crude from Iran, Russia, and Venezuela.
Regarding military conflicts in the Middle East, there is pressure to achieve a ceasefire in the Gaza Strip and exchange hostages for prisoners of war; the goal is to reach the agreement before President Biden's departure. But while negotiations continue, Israel continues with bombardments seeking to eliminate remaining terrorist forces. Additionally, according to the Houthi-affiliated television station, it was reported that Israel launched airstrikes against the western ports of Ras Isa and Hodeidah, the central Hezyaz power plant near Sanaa, and the Harf Sufyan district of Amran province.
On the Russian/Ukrainian front, confrontations have continued, with supposed advances announced by both sides; even North Korean prisoners of war are mentioned, but true hope centers on possible negotiations that Trump has been announcing since before his appointment. Now, there's talk of a meeting between Donald Trump and Russian President Vladimir Putin as soon as Trump takes office.
In summary, the most critical result of geopolitics so far this month is the effect being produced by incremental sanctions related to crude oil transport from Russia, Iran, and, eventually, Venezuela.
Price Behavior
With the revival of oil market optimism, evidenced by inventory reductions, prices reached last year's average levels and the highest in several months.
Thus, at market close on Friday, January 10, 2025, the marker crudes Brent and WTI were quoted at $79.76/bbl and $76.57/bbl, respectively. This week, the barrel price increased more than 4% compared to the previous week. Oil markets opened higher this Monday, January 13, with Brent crude surpassing $81/bbl.
VENEZUELA
A New Totalitarianism
On January 10, despite incontrovertible evidence of electoral fraud and widespread condemnation from the international community, Nicolás Maduro was sworn in for a new presidential term. In a brief ceremony, Maduro consolidated what can be described as a new-style Latin American Totalitarianism, surrounded by supporters, inner circle members, and a strong military presence. The anemic ceremony had limited attendance from prominent international representatives, perhaps except for OPEC’s Secretary General; notably absent were Presidents Lula, Petro, and Sheinbaum (although their ambassadors were present).
The regime temporarily closed the borders with Colombia and Brazil, as well as the airspace, and deployed missiles as a threat against any possible attempt by Edmundo González Urrutia, the legitimate winner of the July 28, 2024 elections, and his companions, to enter the country to be sworn in as Constitutional President of Venezuela, as had been announced. The opposition leadership avoided any incident, even by error, and canceled the arrival for a more convenient opportunity.
Perhaps the most disappointing aspect of this Venezuelan episode is realizing, if it was necessary, the ineffectiveness of international institutions as guarantors of democracy and the freedoms they claim to protect and represent.
On January 9, responding to the call of María Corina Machado and Enrique González Urrutia, massive demonstrations materialized in almost all cities across the country; the one in Caracas featured the reappearance of María Corina Machado after months of being in hiding. At the end of her intervention, MCM was pursued by security forces and kidnapped for a brief period, after which she was released, apparently due to a change of plans or counter-orders from the dictatorship. This is further evidence of the opposition leader's courage and the thorny path she has traveled so far, along with her team and political allies.
The events of January 9 and 10 undoubtedly disappointed the population, which desires and needs political and economic change and must now regroup to face the challenging times ahead.
Following Maduro and his military clique's assault on democracy, the European Union imposed additional sanctions on more regime officials, both civilian and military. Meanwhile, the U.S. government increased the reward for the capture of Nicolás Maduro and Diosdado Cabello to $25 million each and $10 million for Defense Minister General Padrino López. Additional sanctions, including review of OFAC licenses, could result from the new U.S. administration that begins on January 20.
The economy continues to deteriorate as uncertainty and adverse reactions to the consummation of electoral fraud increase. The regime has been actively intervening in the exchange market to stop currency devaluation. Still, the official exchange rate is already at 53.88 Bs/$, and the unmentionable parallel rate is reaching 70 Bs/$. Consequently, annualized inflation is now approaching 90%.
Chinese ports' refusal to accept ships sanctioned by OFAC could also affect oil revenues. The Biden administration has decided to pass the baton of Chevron and other licenses to Trump, so we won't have to wait long.
Oil Operations
No material change has occurred regarding production, refining, availability, or natural gas flaring. However, an additional spill was reported at the Paraguaná Refining Center (CRP) Paraguaná, where a storage tank collapsed, and some crude reached the Gulf of Venezuela.
Production during the last week averaged eight hundred and fifty-five thousand barrels per day (855 Mbpd). The regional distribution of production is shown below:
• West 204 (Chevron 91)
• East 131
• Orinoco Belt 520 (Chevron 112)
• TOTAL 855 (Chevron 213)
Of the total production of 855 Mbpd, almost 300 Mbpd correspond to joint ventures operated under OFAC licenses by Chevron, Repsol, Maurel, and Prom; that is, 35% of the total to be commercialized using market prices and to pay part of the debts.
Refining runs averaged 212 Mbpd of crude and intermediate products, with a gasoline yield of 77 Mbpd and a diesel yield of 70 Mbpd.
The domestic LPG (liquefied petroleum gas) cylinder market situation continues to be very deficient, as pumping from Jusepín to Jose has not been restored.
Crude exports are below the month's planning. However, it's too early to know if the January programming of 670 Mbpd will be met.
The operation of Jose petrochemical plants continues to be limited by natural gas availability; methanol plants are operating at 70% capacity, and the fertilizer plant has stopped.
No comments:
Post a Comment