El Taladro Azul Published Originally in Spanish in LA GRAN ALDEA
M. Juan Szabo and Luis A. Pacheco
Financial markets, U.S. allies, and adversaries are still trying to process the many decisions and announcements that characterize the new White House occupant's initial stage. The nervousness and uncertainty that seem to permeate global oil markets are reflected in prices, which have shown intense volatility and a downward trend for the second consecutive week.
President Trump is determined to undermine the foundations of many long-standing economic, legal, and political beliefs. This past Saturday, it was announced that starting Tuesday, February 4, tariffs of 25% will be imposed on products from Canada and Mexico and 10% on products from China. An exception was made for Canadian energy, including natural gas and oil; Canadian energy imports will be subject to a lower rate of 10%. The justification given is that this is a measure to force these countries to intensify their efforts in combating fentanyl trafficking and illegal immigration to the U.S.
In another move from the same playbook, Trump said he would impose 100% tariffs on products imported from BRICS countries if they attempt to create an alternative currency to the dollar. The new president also did not hesitate to withdraw the U.S. from the World Health Organization (WHO) and the Paris Climate Agreement while announcing the reversal of a series of transitional energy policies from his predecessor.
Markets will need to factor in the impact of these measures, particularly the tariffs, which will affect many sectors, especially oil prices; Canada and Mexico supply about 70% of U.S. crude oil imports. In response, Canada and Mexico announced they were preparing proportional tariffs on U.S. products. China regretted the decision and announced it would take “necessary countermeasures to defend its legitimate rights and interests.” Everything indicates that we are at the beginning of a trade war.
Geopolitics
Donald Trump began his second presidency with a flurry of executive orders and policy changes that have disrupted the geopolitical agenda of virtually the entire world. The dynamic actions aim to correct the U.S.'s trade imbalances with the rest of the world, as perceived by the new administration, reversing the previous government’s policies, mainly regarding energy, and taking control of the so-called “illegal immigration invasion.”
The combination of tariffs and political pressure on neighboring countries seeks to force them to secure the border against drug trafficking. While addressing immigration and border issues is an area where he can achieve early victories—and thus solidify the support of voters who prioritize this issue—other initiatives may face more resistance.
In any case, a tariff war between these countries would harm their populations' purchasing power. The development of a trade war is difficult to predict and may ultimately backfire on the Trump administration.
One of the first programs launched as soon as the new president was sworn in was the capture and deportation of illegal immigrants, initially targeting those involved in criminal activities. A military base in Colorado will be used as a processing center for illegal immigrants. To facilitate their deportation, it was announced that while awaiting consent from their countries of origin, they could be held at Guantanamo Bay, Cuba, or sent to El Salvador with the approval of President Bukele.
Through political and commercial pressure, Trump “convinced” President Petro to accept deportees under conditions Petro could guarantee using Colombian transportation—a political and media victory for Trump. After meeting with top regime officials in Venezuela, U.S. Special Envoy Richard Grenell announced that Caracas had agreed to receive its nationals and cover the costs. Notably, Mexico has been routinely accepting deportation flights despite some unfounded reports.
Energy Policy
Trump’s energy vision is relatively straightforward. It focuses on increasing domestic hydrocarbon production, encouraging greater development activity—the famous “drill baby, drill”—and reducing federal resources allocated to inefficient energy sources. To incentivize increased activity in the U.S., the administration has lifted restrictions on hydrocarbon development activities on federal lands and offshore areas. It proposes returning royalties to 12%, as they were in the past. Additionally, there are plans to reduce the corporate tax rate to 15%.
Moreover, the administration seeks OPEC’s cooperation to open its supposedly idle production capacity. This supply increase aims to significantly lower prices, supporting U.S. economic development and benefiting the rest of the world.
Trump’s team argues that these changes would eliminate bureaucratic inefficiencies and reduce the “breakeven cost” for new developments by around $12 per barrel. Theoretically, this would avoid the apparent contradiction between volumetric goals and prevailing economic realities. Time will tell how all these forces, which are not entirely coherent, interact.
Geopolitics
Activity has also occurred in geopolitically tense areas like Southeastern Europe and the Middle East, though it is not as newsworthy or dynamic as Trump’s moves.
Russia announced the capture of Velika Novosilka, the second-largest gain for invading forces in 2025, following the complete takeover of Kurakhove in early January. Both towns are located in the southwestern part of the Donetsk region. Currently, Russia controls about 18% of Ukrainian territory, home to around six million people.
Meanwhile, Ukraine succeeded in new incursions into Russian territory. According to local observers, the Volgograd refinery, one of Russia’s most significant, was hit and reportedly on fire. Additionally, one of Russia’s major microelectronics factories had to halt production this Friday after a Ukrainian drone attack. The plant, Kremny EL, is located in Bryansk, the capital of the Bryansk Oblast, which borders Ukraine.
Ukrainian Special Operations Forces confirmed on Friday that North Korean troops fighting alongside Russians in the Kursk region have disappeared from the contact line.
Middle East Developments
In the Middle East, the ceasefire in Gaza remains in place, and the exchange of hostages for prisoners and war convicts is progressing. However, Israel maintains its vigilance in the region. This week, upon detecting drone activity in eastern Lebanon, the Israeli Air Force bombed several Hezbollah targets in the Bekaa region. Targets included a military site with underground infrastructure used for weapons development and production, as well as transit infrastructure on the Syria-Lebanon border used by Hezbollah to transport arms into Lebanon.
In a new development, President Trump announced that he had ordered precision bombings against ISIS in the Golis Mountains in northern Somalia on Saturday. The strikes killed several ISIS members, with no civilian casualties reported. The bombings destroyed the caves where the Islamic forces were based.
U.S. Foreign Policy Shift
Secretary of State Marco Rubio embarked on his first international trip, which included visits to Latin American and Caribbean countries: Panama, El Salvador, Costa Rica, Guatemala, and the Dominican Republic. The State Department has called the trip historic, as it marks the first time in over a century that a U.S. Secretary of State has chosen Latin America for their first official visit.
Rubio is expected to reinforce the new administration’s immigration priorities with regional leaders and plans to address Beijing’s influence during several stops, particularly concerning alleged Chinese control over the Panama Canal.
Fundamentals
Global crude oil demand is approaching 104 million barrels per day (104 MMbpd), with uncertainty surrounding additional supplies that some analysts speculate will balance the market on the supply side. Some of these additions, like Guyana, will materialize around mid-year. Brazil’s additions appear somewhat delayed and affected by more significant declines in existing production. New production from Canada could potentially be affected by tariffs and, of course, the gradual opening by the OPEC+ group, which is planned to start in April of this year unless there’s a change in strategy.
However, we are also observing higher declines on the supply side due to a lack of investment in response to increased country risk, financial problems, and internal and external conflicts in various producing countries. These include Mexico, Colombia, Ecuador, Russia, Nigeria, Libya, and the United Kingdom.
The U.S., as the major producer and currently in the eye of the storm, is navigating comfortably. It produces slightly more than 13 million barrels per day, which shows curious variability due to the inherent imprecision of the calculation and adjustment system used by the Energy Information Administration (EIA).
The EIA also reported that commercial crude inventories increased by 3.4 million barrels (3.4 MMbbls), while distillate inventories decreased by nearly 5 million barrels (4.9 MMbbls). About half of this increase was related to lower refining runs.
The energy decisions that the Trump administration attempts to implement form a complex mosaic of contradictory pieces, creating resistance and uncertainty in achieving the primary goal of reducing energy prices. Let’s dive in:
· Oil is a geopolitical game played on a board with multiple actors and interests. For example, OPEC+ countries may not agree with low prices—say, below $70/bbl for Brent. In these countries, oil is more than just an industry; it’s the backbone of their economies. As is known, OPEC+ decided to postpone until April the gradual production increase of the cartel, a schedule we don’t believe accommodates Trump’s requests. In turn, this could be related to the resumption of the Abraham Accords, which were interrupted by Hamas's invasion of Israeli territory on October 7, 2023.
· The data indicates that the breakeven price for new wells in the U.S. fluctuates between $59/bbl and $70/bbl, making it complex—as it has always been—to determine an acceptable price.
· The goal of filling the Strategic Petroleum Reserve (SPR) while imposing hydrocarbon sanctions against Russia and Iran, their fleets, and intermediaries limits commercial crude volumes in the market, pushing prices upward.
· Logistical and economic reasons exist to maintain the flow of U.S. crude exports and foreign crude imports, mainly based on the characteristics of respective crudes, such as heavy crudes from Canada, Mexico, Venezuela, Colombia, and Ecuador.
· Additionally, not all oil companies operating in the U.S. oil sector are governed by the same economic, operational, and legal conditions, not to mention differences across sedimentary basins and conventional vs. unconventional developments. In any event, and giving the benefit of the doubt to the effectiveness of the measures, the number of active rigs in the U.S., according to Baker Hughes, increased modestly for the first time in several weeks by six units, with five of these rigs operating in federal areas.
No new reports on China have been released, but analysts generally agree that 2025's economic growth will be better than 2024's.
The oil market was also adversely affected, although only collaterally, through contagion with the emergence of DeepSeek, which caused a black day on Wall Street, with the Nasdaq tech index falling nearly 3%. DeepSeek is a Chinese artificial intelligence (AI) tool that mimics technologies like ChatGPT. It is said to perform almost as well as the best Western models but requires only a fraction of the computing power and, therefore, a fraction of the cost. DeepSeek is a wake-up call about disruptive technologies emerging unexpectedly.
Price Dynamics
Predicting price behavior is always complex, but the current environment—where changes happen within hours rather than weeks or months—makes it even more challenging. Volatility and subjective and interpretive perceptions have intensified, affecting investors and, of course, prices. At the close of trading this past Friday, prices began to rebound, likely as the imposition of tariffs became more evident on Bloomberg screens. However, it was too late to avoid another week of losses of nearly 3% compared to the previous week.
As such, at the close of markets on Friday, January 31, 2025, benchmark crudes Brent and WTI were priced at $75.67 and $72.53 per barrel, respectively. By the time of this column’s publication on Monday, February 3, prices had opened higher in the markets.
VENEZUELA
Visit of Richard Grenell: A New Negotiation?
Since Trump’s inauguration, the Venezuelan regime has had reasons to fear the new Trump administration’s stance towards Venezuela. It has been pulling all the levers to protect the benefits of the existing OFAC licenses—the ultimate lifeline for the battered national economy.
Suddenly, though not surprisingly, the topic of Venezuela appeared on the White House radar. Indeed, Richard Grenell, a trusted confidant of Trump, landed in Venezuela. Welcomed at Maiquetía Airport by the President of the National Assembly, Jorge Rodríguez, and Venezuela’s Foreign Minister, Grenell met with Nicolás Maduro. The fact that a high-ranking U.S. envoy met with a leader considered a criminal, implicitly granting him recognition, sparked numerous interpretations.
The visit returned memories of secret missions conducted by officials from the previous U.S. administration, led by the then-special envoy Juan González, who held meetings with Maduro and his representatives.
Mauricio Claver-Carone, the Trump administration’s head of Latin American affairs, tried to ease the anxiety caused within the opposition by Grenell’s visit. He clarified that Grenell’s mission was limited to demanding the release of U.S. citizens imprisoned in Venezuela and arranging the orderly deportation of illegal Venezuelan migrants, including detained members of the “Tren de Aragua” gang in the U.S. He emphasized that it was not a “quid pro quo” negotiation. Nevertheless, the visit somewhat contradicted the critical positions that the Trump administration continues to express firmly.
Grenell left Venezuela with the six prisoners he had gone to demand; the rest is unclear.
Trump stated he had no interest in purchasing Venezuelan oil and stressed the need to help the Venezuelan people. Meanwhile, **Chevron’s CEO, Mike Wirth**, intensified lobbying efforts at the White House, warning that Chevron’s withdrawal would strengthen Russian and Chinese presence in Venezuela. However, Chevron’s activities in Venezuela were not mentioned in the company’s results, even though they represent more than 10% of its crude production. Analysts believe it’s unlikely that the licenses will remain intact due to Venezuela’s situation and the risk of replacement by Russian and Chinese companies.
Social media was flooded with rumors linking Grenell’s visit to the announcement that **OFAC had renewed License 41**, which authorizes Chevron’s activities in Venezuela. The reality is that the license is automatically renewed on the first of each month and can be revoked at the Treasury Department’s discretion.
Another complex event clouding Venezuela’s internal situation is the unrest in the Catatumbo region in western Venezuela. This area, bordering Colombia, has been the scene of armed clashes involving Colombian armed groups like the *National Liberation Army (ELN) and dissident factions of FARC, alongside the Colombian and Venezuelan armies. Venezuela is being accused of allowing guerrilla fighters to operate freely on its territory in a tangled web of narcopolitics.
The economy has continued downward, intensified after the electoral event and Maduro’s subsequent inauguration. Public spending has fallen to levels not seen in over a year, leading to reduced consumption. Legal reserve requirements imposed on the banking sector have reached high levels—around two billion dollars—making bank credit difficult and reducing economic activity. At the same time, official exchange rate controls have been adjusted to allow some currency depreciation. Still, the gap between the official and parallel exchange rates has again exceeded 20%.
These trends point to a substantial increase in inflation, which the regime will aggressively try to curb, having learned from past hyperinflationary periods. However, the regime’s hands are partially tied in trying to control runaway inflation, given that the overall supply of foreign currency has contracted and could shrink dramatically if OFAC licenses are reviewed. Thus, an incremental contraction of the Venezuelan economy is almost inevitable.
Oil Operations
Oil activities had little change, unlike the turbulent political events and the economic downturn. There is great nervousness and anticipation regarding the prospects of the licenses that, in one way or another, support around three hundred sixty thousand barrels per day (360 Mbpd) of oil: 240 Mbpd are produced under License 41; 80 Mbpd are produced, and another 40 Mbpd are marketed under License 44 A. The volumes placed under the licensing regime are traded mostly at market prices, unlike the rest of the sales, which are transacted with significant discounts and other collection weaknesses.
Operational activities continued almost unchanged, except that light crude oil production in northern Monagas continued at the expense of excessive flaring/venting, which totaled around two billion cubic feet per day (2000 MMcfd).
Crude oil production in January averaged eight hundred sixty-four thousand barrels per day, geographically distributed as follows:
- West: 211 (Chevron 95)
- East: 131
- Orinoco Belt: 522 (Chevron 120)
- TOTAL: 864 (Chevron 215)
Refining runs averaged 212 million barrels per day (Mbpd) of crude oil and intermediate products, with gasoline yields of 75 Mbpd and diesel yields of 72 Mbpd. The PetroPiar upgrader processed 126 Mbpd, the highest volume in several years.
The domestic LPG cylinder market continues to face issues due to the limited availability of liquids extracted from the produced gas.
January ended with shipments of 648 Mbpd, of which 64 Mbpd were dispatched without a final destination and are thus classified as floating inventory. The remaining volume, 584 Mbpd, is distributed by destination as follows: 261 Mbpd to the USA, 194 Mbpd to China, 65 Mbpd to India, and 64 Mbpd to Spain. The exported grades were 363 Mbpd of Merey-16, 124 Mbpd of Boscán, and 96 Mbpd of Hamaca.
Due to the limited availability of light crude oil for blending with Merey-16 crude, the marketed volumes have been dispatched with specifications deviating from commercial standards, which we must assume is reflected in a decrease in the realized price.
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