OIL MARKETS IN CHECK: TRUMP, PUTIN, AND OPEC+ REINFORCE UNCERTAINTY

El Taladro Azul

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

Published  Originally in Spanish in  LA GRAN ALDEA

Oil markets have been trying to understand, without much success, the back-and-forth in President Trump's administration policies since his inauguration. Two new variables have been added: Putin and OPEC+, which affect geopolitics and market fundamentals. The difficulty of understanding the impact of the combination of these three variables has led the oil market to fluctuate within a narrow price band, failing to maintain last week's gains.

Indeed, Russia, under Putin's leadership, has exhibited incomprehensible behavior, at least within the logic handled by Western analysts. Moscow announced an unexpected ceasefire and prisoner exchange during Orthodox Holy Week celebrations, which was confusing due to its unforeseen and untimely nature. Subsequently, the Russians increased bombings on Ukraine's capital, far from the combat trenches, and after meeting with the U.S. special envoy, also unexpectedly, Putin indicated that he was willing to negotiate directly with Ukraine to end the war.

Additionally, when it seemed that common sense would prevail in the trade war between the U.S. and China, the Chinese Ministry of Foreign Affairs frustrated expectations by denying rumors that negotiations were taking place, while increasing its diplomacy with affected countries, seeking a united front against the barrage of U.S. tariffs.

Fundamentals

Saudi Arabia has used the OPEC+ instrument to take measures against some association members who repeatedly violate the agreed quotas. These are Iraq, UAE, and Kazakhstan, which until recently negotiated within the cartel plans to compensate for their current overproduction with cuts in the coming months.

This week, for example, Kazakhstan finally unmasked itself and announced that its oil policy would be governed by its national interests and not by the quotas established by OPEC+. Kazakhstan's Energy Minister, Erlan Akkenzhenov,  said the country cannot reduce production in key projects led by major foreign oil companies such as Chevron and ExxonMobil. Projects like Tengiz, Kashagan, and Karachaganak represent 70% of the country's production and are fully expanding, further boosting national production.

Despite having committed to reducing production until June 2026 to compensate for its previous excess, Akkenzhenov emphasized his government's limited control over joint ventures with private capital and warned against closing mature fields, as, according to him, permanent damage could be caused. With the forecast that the CPC pipeline will transport 1.2 million barrels daily, Kazakhstan's exports will not suffer limitations like last year's.

This new dynamic generates tensions within OPEC+, where Saudi Arabia bears the brunt of cuts to balance the market, while Kazakhstan and others benefit from demand growth. The Saudis are willing to use their most forceful weapon, a price war, as they did on previous occasions in reaction to Venezuela's overproduction in the 90s and oil policy disagreements with Russia in 2019. A fracture in the until now cohesive OPEC+ group cannot be ruled out. This is a highly complex scenario for the OPEC+ alliance. Kazakhstan's intransigence could drive other members to reconsider the benefits of complying with the quota agreement, leading them to consider leaving the coalition. An existential problem whose effects would impact beyond the cartel if prices were to collapse.

We also cannot rule out that Saudi Arabia's angry reaction is an exaggeration of reality. Its production potential, estimated at almost twelve million barrels per day (11.8 MMbpd), might be lower, and the disagreement could dissipate in the coming weeks. We estimate that Saudi Arabia's immediately available idle production is around 1.2 MMbpd. Also, as we have argued before, the announced opening of barrels for May may be less than expected.

In this market, full of uncertainty, activity in the U.S. hydrocarbon sector has remained stable, with production close to 13.4 MMbpd, according to the EIA, and drilling and hydraulic fracturing equipment activities without material changes, according to Baker Hughes' report. Recently, U.S. Energy Secretary Chris Wright has gone from being an enthusiastic proponent of shale oil's robustness to issuing an alert about oil prices, apparently telling Bloomberg that "Oil at $50/BBL (WTI) is not sustainable for producers."

At the beginning of this month, Wright told London's Financial Times that shale oil could boost production even with an oil price of $50/BBL and praised the industry's resilience and innovation. This change in Wright's position is a sign that shale oil operators in the U.S. are not willing to abandon their financial discipline due to political pressure, especially in an industry that has been optimizing through a process of consolidation through mergers and acquisitions, more focused on remunerating their shareholders than pursuing marginal barrels.

We believe that the "overproduction" of some OPEC+ countries would be offset by production declines in other countries and by the sanctions weighing on the supply of Russian, Iranian, and Venezuelan crude oils. On the other hand, the volume of Russian crude sent to India and China has had a slight uptick with the fall in oil prices, which have dropped below the level set for sanctions.

Geopolitics

Trump's special envoy, Steve Witkoff, met with President Putin in Moscow to discuss the U.S. plan to end the war in Ukraine. According to the White House, the two parties were "very close to an agreement," despite apparent differences in their positions. Trump called for a high-level meeting between the two warring countries via social media. Crimea is the most significant disagreement in the negotiations. Zelensky maintains that recognizing Crimea as part of Russia would violate Ukraine's constitution. At the same time, Trump criticized the position taken by Zelensky and, in an interview for Time magazine, said that "Crimea will remain part of Russia." "Zelensky understands that; everyone understands that it has been with them for a long time." In the same interview, Trump acknowledged that his promise to resolve the conflict in 24 hours had been an exaggeration.

After meeting with the special envoy, Witkoff, Russian President Vladimir Putin said he is open to bilateral talks with Ukraine for the first time in years, as U.S. pressure increases on both sides to reach a quick peace agreement. Trump and Zelensky privately met at the Vatican after Pope Francis's funeral. Some analysts think that Putin's strategy is to buy time to militarily weaken Ukraine and have the White House lose interest in the issue.

Negotiations between Iran and the U.S. on Tehran's nuclear program will return on Saturday to the Sultanate of Oman, where experts from both sides will begin to finalize the technical details of any possible agreement. The talks seek to limit Iran's nuclear program in exchange for lifting some of the economic sanctions that the U.S. has imposed on Iran, particularly on its oil. Always under the threat of an air strike against the Iranian program if an agreement is not reached.

Meanwhile, the biggest current confrontation, without being warlike, is the trade war between the world's two largest economies. In response to Trump's initiative to impose heavy tariffs on Chinese products to balance trade flows between the two countries, China reacted with the same forcefulness, imposing tariffs on products from the U.S. Things continued to escalate, reaching tariffs of 145% for Chinese products and 125% for American products. In an aggressive stance, China banned the reception and purchase of Boeing aircraft and importing parts of American origin. Rumours of negotiations behind the scenes exist, but China has dismissed the notion. China's defiant position could lead it to expressly disregard oil sanctions and supply itself with cheap oil from Russia, Iran, and Venezuela, further redrawing the global oil flow.

Late on Saturday, it was reported that a considerable explosion shook a port outside of Bandar Abbas in southern Iran, supposedly linked to chemical components, brought from China, used to manufacture solid fuels for missiles. The incident caused a significant but still undetermined number of deaths and injuries. Attempts to control the fire at the port continued on Sunday morning. The explosion took place just as Iran and the U.S. were meeting in Oman, on the other side of the Strait of Hormuz, for the third round of negotiations on the advancement of Tehran's nuclear program. Although this port is an important oil terminal, no damage to those facilities has been reported.

This accident reveals several fundamental variables. On one hand, China's role as a supplier to the Iranian military industry. On the other hand, the effect of Israeli attacks on Iranian facilities used to manufacture solid fuel forced the storage of these unstable substances at the port under insecure conditions. Finally, they indicate a deterioration in the Persian country's infrastructure due to continuous American sanctions.

Price Dynamics

Crude prices went through another week with extreme volatility. To the positioning of OPEC+, with its internal struggles over violation of agreements by some of its members, was added tariff instability and the failed attempts to end the war in Ukraine. The collateral effect of the sanctions is the diversion of significant volumes, all waiting for China to acquire them, despite Chinese demand showing little growth and the threat of secondary tariffs. If price discounts were substantial, China could acquire them for strategic storage.

Crude oil futures were initially in retreat on Friday but recovered at the end of the day, but failed to overcome the mid-week losses. The week closed with a 2% decrease compared to the previous week. Thus, at the close of markets on Friday, April 25, 2025, the benchmark crudes Brent and WTI were trading at $66.87/bbl and $63.02/bbl, respectively.

VENEZUELA

China as the saviour of last resort

Delcy Rodríguez, Venezuela's vice president, is again in China, where, in addition to meeting with her counterpart, she held meetings with the state oil company, probably to persuade them to buy oil directly from PDVSA. This is a pressing need for the Caracas regime, due to fears that the lack of access to the U.S. market will be replicated in other markets, given the threat of secondary tariffs that the Trump administration would impose on buyers of Venezuelan hydrocarbons.

Although everything indicates that May 27 is a definitive date (licenses and permits expire), the regime hopes the outlook may change. Perhaps encouraged by those in charge of carrying out oil lobbying in Washington and even by some informal comments from the Trump administration itself, Miraflores speculates about that change. To keep that hope alive, deportation flights from the U.S. have increased. In recent weeks, nine planes have arrived. Another strategy used is to avoid, at all costs, arguing directly with President Trump. They attribute all disagreements to Secretary of State Marco Rubio, President Bukele of El Salvador, or the opposition represented by María Corina Machado and Edmundo González.

As the deadline of May approaches and with the early withdrawal of shipments that Chevron was taking to the U.S., tanker movement is changing. From a large number of medium-sized tankers and ship-to-ship transfers in waters near Amuay and Aruba, complemented by some large tankers, it appears that, from now on, exports will be mainly VLCC (Very Large Crude Carriers) and some occasional small and medium-sized cargoes, handled by Vitol and Global Oil Terminal (asphalt).

The drop in currency traded on exchange desks is notable due to the absence of Chevron, and the foreign exchange market is experiencing the consequences. A pronounced devaluation of the Bolivar is reported despite greater intervention by the BCV. The official exchange rate exceeded Bs 86/$, and the parallel reached Bs 105/$, a gap of around 23% and apparently out of control. If maintained, this scenario would reach the classification of hyperinflationary.

Given the repeated protests by Maduro's administration over the imprisonment of Venezuelan migrants in El Salvador, President Bukele turned the tables by offering an exchange, 1 for 1, of 259 Venezuelan deportees to El Salvador for 259 political prisoners in Venezuelan jails. Maduro rejected the exchange, and Bukele responded that he did not understand how a regime that had agreed to exchange up to 30 political prisoners to obtain freedom for Alex Saab was not willing to exchange persecuted individuals under conditions of parity. Unfortunately, both presidents have turned the suffering of Venezuelans into political currency.

On the political side, the regime has enabled Henrique Capriles to participate in the May 25 elections and approved a card called "Union and Change" with which Capriles and his allies will run. Although numerically this newly minted opposition is not material, it is another division for the legitimate opposition and will be presented as proof of the legitimacy of the election results.

Oil Operations

As expected, exports were the most affected operations, which had consequences for refinery activities. Changes were needed to supply the Paraguaná Refining Complex (CRP) with the appropriate diet of crude oils. Upstream, activities in the field are being reduced around operations that are, or were, under the umbrella of OFAC licenses.

The Boscán field, in the west of the country, the flagship of Chevron's presence, continued its production at capacity, despite no tankers being observed loading in Bajo Grande. If that situation persists, in about 10 days, production will have to be reduced due to a lack of storage. The problem with Boscán crude is its use for asphalt production, which is generally a seasonal demand.

In the José petrochemical complex, in the east of the country, the methanol, ammonia, and urea plants operate at a level only limited by the availability of natural gas. In the Morón complex, in the center of the country, people close to the operation indicate that the ammonia and urea plant could begin to operate at the end of May, with gas supply from the Perla field, changing the flow direction of the ICO (Central-Western Interconnection) gas pipeline.

Several shipments of diluent arrived from the U.S., probably part of the crude swaps before the elimination of licenses, so the diluent situation is comfortable for now.

Crude production during the last week averaged 865 Mbpd, geographically distributed as follows:

• West                217 Mbpd
• East                 126 Mbpd
• Orinoco Belt   514 Mbpd
• TOTAL          867 Mbpd

National refineries processed 211 Mbpd of crude and intermediate products, with a gasoline yield of 76 Mbpd and 78 Mbpd of diesel.

Seven tankers were dispatched to the Far East in exports, presumably with China as the final destination. On the other hand, coastal tankers loaded, at the La Salina terminal in Lake Maracaibo, a new segregation called "Blend 22," described as a medium crude with high sulfur, to be transshipped to a larger tanker in the designated area near Amuay in the name of the French oil company, Maurel & Prom. This crude appears to be a mixture of various crude oils produced in Lake Maracaibo by the JVs PetroZamora and PetroRegional. 

The average sale price of barrels marketed under OFAC licenses, net of debt payment, was $47.74/BBL, and the weighted average of all exports was $30.56/BBL.

 

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

TARIFF NEGOTIATIONS OPEN OPPORTUNITY FOR THE OIL MARKET

 El Taladro Azul

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

Published  Originally in Spanish in  LA GRAN ALDEA

In a week that coincided with the commemoration of Jewish Passover —the liberation of the Hebrew people from slavery in Egypt—and Christian Holy Week, markets experienced a change in their downward trend. The pessimism generated by the uncertainty of the trade war unleashed by the White House gave way, at least temporarily, to welcome optimism in an oil industry battered by the growing probability of a collapse in demand, given the threat of a recession in major economies.

The tightening of U.S. sanctions against Iran, somewhat better-than-expected economic results, positive news about U.S. negotiations with Japan and the European Union, through contacts with Prime Minister Melloni, and new compensation quotas from OPEC+, managed to mitigate the market's anxiety level; However, there is still an understandable caution regarding the results of the Chinese-American trade confrontation. Overall, increased supply risks derived from sanctions, investment, and production cuts, coupled with a modest trade confidence improvement, boosted oil prices.

Fundamentals

Despite reductions in forecasts from both the International Energy Agency (IEA) and OPEC, oil demand has been relatively robust over the past 12 months. Still, supply has not been incentivized enough to balance it. The risk associated with a supply that fails to rebound in response to demand is once again becoming relevant in market calculations, at least in the short term.

Indeed, the latest forecasts from the IEA and OPEC have reduced demand growth for 2025 to seven hundred and thirty thousand barrels per day (730 Kbpd) and nine hundred thousand barrels per day (900 Kbpd), respectively. On the supply side, both sources forecast increases of 900 Kbpd for the year, mainly from countries outside the OPEC+ sphere.

According to the IEA, global oil supply reached 103.6 million barrels per day in March, representing a year-on-year increase of nine hundred and ten thousand barrels per day, with non-OPEC+ countries leading monthly and annual increases. OPEC+ will raise its production targets by four hundred and eleven thousand barrels per day in May. Still, the actual increase could be substantially lower due to some countries' inability to meet their quotas. The IEA maintains that global supply growth for 2025 has been reduced by two hundred and sixty thousand barrels per day, to one million two hundred thousand barrels per day (1.2 MMbpd), due to decreased production in the United States and Venezuela. Production in 2026 is expected to increase by 960 Kbpd, led by offshore projects.

On the other hand, OPEC forecasts that the supply of liquids from countries not belonging to the Declaration of Cooperation (outside the OPEC+ sphere) will grow by approximately nine hundred thousand barrels per day (900 Kbpd) in 2025. The main drivers of growth are expected to be the U.S., Canada, Brazil, and Argentina. For 2026, supply growth from this group of countries was also slightly revised downward, to approximately nine hundred thousand barrels per day (900 Kbpd).

These estimates do not consider the effect that the reduction in investments may have, nor the closure of fields/wells generated by the fall in prices. Preliminary indications point globally to cuts of between 10% and 25% in investment budgets to avoid affecting dividend programs and share buybacks, in the case of listed oil and service companies. As for companies not listed on the stock exchange, the reductions are more aggressive. Although representative figures of the production closures companies have had to make to stay financially afloat have not been published, our conservative estimate suggests that the closed volume could reach about 400 KBPD since the beginning of March.

As reported last week, OPEC+ is adopting strategies against the grain, given the oil market situation. The result of accelerating the opening of production that is currently closed and the announced overproduction compensations, coupled with some members' inability to meet their quota, creates an uncertain situation regarding the incremental volume that will reach consumers from OPEC+ countries.

The measure to accelerate the process of undoing voluntary closures seems to confirm rumors that Saudi Arabia is weighing the idea of abandoning its traditional role as the OPEC's "swing producer," tired of financing market control because of countries that fail to comply with production quotas, such as Kazakhstan, the United Arab Emirates, and Iraq. Since the end of last year, the Saudis' discomfort with the distribution of burdens to balance the market has been known: the kingdom assumes almost 70% of the total OPEC+ cuts.

However, changing strategy and increasing oil production will have financial consequences for Saudi Arabia, which needs high oil prices to develop Crown Prince Mohammed bin Salman's ambitious Vision 2030. Although Saudi production is currently below nine million barrels per day, the lowest level in 15 years, the country has several ways to face the problem of lower income: reprogramming the Vision 2030 economic plan, financing schemes by issuing sovereign debt, or drawing on bulky international reserves to face a period of low prices. Furthermore,  the commercial opportunities presented by the 10% low tariff imposed by Trump on the Persian Gulf countries may serve as leverage to benefit the local economy.

The Trump administration is reportedly in multiple negotiations with authorities from up to 50 countries that want to reach mutually beneficial trade relations and is, in parallel, managing the trade confrontation with China. This situation generates uncertainty and instability, affecting the appetite of oil investors. As a result, U.S. oil production is slightly declining due to reduced investment and adaptation to lower barrel prices.

The Chinese economy, which was beginning to show signs of recovery, will likely be affected by the tariff war with the U.S., which goes beyond commercial logic. On the other side of the coin, China is receiving growing volumes of Russian crude with discounts, especially those from the Russian Arctic, using a ship-to-ship transfer scheme on the high seas (STS) from sanctioned vessels to non-sanctioned tankers, near Malaysia and Singapore. This same journey will be followed by the incremental volumes of Venezuelan crude arriving in the region starting this month.

This generalized uncertainty in the oil market will affect the bidding processes for exploration blocks that several countries are conducting; several have already been awarded, and others are in process, for example, in Indonesia, India, and Brazil.

Geopolitics

The main military conflicts shaking the world, the Russian invasion of Ukraine and Israel's war against Iran's multiple proxy groups, have taken a turn for the worse in recent days. In Ukraine, in addition to the continuous harassment of its civilian population through incessant bombing by Russia, President Zelensky is also receiving political pressure from the U.S. to yield and reach a negotiated peace quickly, under penalty of the U.S. abruptly disengaging from the conflict.

Even though the government in Kyiv has already agreed to a framework agreement on minerals with Washington, which would allow the U.S. to invest in Ukraine's recovery in exchange for a stake in future profits from the development of the energy mining sector, the White House has not expressly condemned the increase in Russian attacks. Ukraine expected the agreement and the U.S.'s growing impatience with Russia to translate into new sanctions for Moscow. Instead, the threat to disengage from ongoing peace efforts benefits the Kremlin more than Kyiv.

A tangible warning was sent after the first round of peace talks between U.S., European, and Ukrainian officials in Paris. At the close of that meeting, Secretary of State Marco Rubio said: "We are reaching a point where we must decide if this is even possible, because if it's not, I think we'll simply move on. It's not our war. We have other priorities to focus on." Another meeting is expected next week in London, and Marco Rubio suggested that this meeting could be decisive in determining whether the Trump administration continues its participation in the negotiations. Reading between the lines, the promised peace in Ukraine is no longer a priority for the American administration.

Regarding the Middle East, we observe steps forward and backward. On the one hand, in the positive sense, Iran and the U.S. began a second round of negotiations on Saturday about Tehran's nuclear program, with apparently good results. The meetings are being held at the Omani embassy in Rome, with the presence of Steve Witkoff, President Trump's envoy for the Middle East, and Iranian Foreign Minister Abbas Araghchi. The negotiations are again mediated by Oman's Foreign Minister, Badr al-Busaidi.

The mere fact that talks are taking place represents a crucial element, given the decades of bad relations between the two countries, and that it was precisely Trump, during his first term, who withdrew the U.S. from Iran's nuclear deal with world powers. The talks are taking place under a shadow of risk of a possible military attack by the U.S. or Israel against Iran's nuclear facilities, or that the Iranians fulfill their threats to develop an atomic weapon.

On the other hand, in Gaza, military tension has increased. Israeli troops are intensifying attacks to pressure Hamas to release hostages and disarm. Israel has promised to intensify its attacks and occupy large "security zones" within the Strip. The Houthi rebels in Yemen have remained active, launching missiles and drones towards Israel and attacking navigation in the Red Sea, which provoked U.S. attacks on positions in Yemen. The U.S. Central Command said Thursday that the attacks on the Ras Isa fuel port in Al Hudayda province were aimed at cutting off revenue to the Houthis, and added that the port has been used as a source of illicit earnings for the group. The situation in Yemen seems to be escalating. Late Saturday, local media reported that forces opposing the Houthis are gathering for a ground offensive. Unofficially, it is noted that the operation will be coordinated with Saudi support and the Guardians of Prosperity coalition.

Across the Atlantic, in Ecuador, the second round of presidential elections was held normally. The current president, Daniel Noboa, was re-elected with about 56% of the votes, against 44% for the left-wing candidate, Luisa González, who, without much evidence, denounced fraud in the elections. The new president's policies could affect the oil production capacity of this country, which, although with ample reserves and infrastructure, suffers from an oil industry handicapped by political interference and corruption.

Price Dynamics

Crude oil prices during this week reacted to new U.S. sanctions against Iranian oil exports, which have increased concerns about a more limited global supply. On the other hand, production cuts offered by some OPEC+ members, such as Iraq and Kazakhstan, also supported prices this week. The market also has optimism about possible progress in trade negotiations between the U.S. and some essential trading partners, such as Japan. There are rumors of an opening with China that could result in better economic growth and oil demand than the market perceives. As a result, prices closed with an increase of more than 5% compared to the previous week. Thus, at the close of markets on Friday, April 18, 2025, the benchmark Brent and WTI crudes were trading at $67.96/bbl and $64.68/bbl, respectively.

VENEZUELA

An Agonizing Economy

Venezuela has just commemorated the 215th anniversary of April 19, 1810, which marked the beginning of its independence struggle from the Spanish Empire. Today, as on that significant date, changes are demanded in the face of a subsistence economic and social situation that is progressively worsening. The country risk remains high due to the regime's lack of legitimacy, and the hydrocarbon industry is affected by international sanctions and restrictions on electricity supply.

The Trump administration’s cancellation of oil licenses, the imposition of secondary tariffs on Venezuelan crude buyers, and the shortage of foreign currency create a critical situation for the regime's survival. Remember that the country and its institutions cannot access international financial markets to escape the quagmire. Consumption is declining, the exchange rate is sliding, and no one wants to mention the projected inflation. The near future is full of questions. Will China be able and willing to take most of Venezuela's hydrocarbon exports? How will sanctions affect the fleets and intermediaries used for such transport? Where will the diluent and fuel for crude blending and the domestic market come from? How will the financial flow from the ultimate crude buyer to Venezuela be? How much will be lost along the way? We don't have answers, but undoubtedly the foreign currency that will reach Venezuelan coffers will be less than what we were accustomed to during the "opening" supported by the licenses, the elements of which we can only reconstruct from external sources, because the information is hidden behind the confidentiality clauses of the Anti-Blockade Law.

To try to narrow down the problem that is coming, we have analyzed three scenarios representative of net income from the sale of hydrocarbons (Net Income = Export Income - Import Expenses). The calculations were made at a Brent crude price of $70/BBL.

• Scenario 1 corresponds to the case where China absorbs all the crude and product (600 Kbpd of oil and 50 Kbpd of residual) that the rest of the markets are unwilling to accept due to the risks of tariffs or other U.S. sanctions.
• Scenario 2 represents a maximum offtake by China of  500 Kbpd, which would cause a production closure equivalent to the unexported crude, around 150 Kbpd.
• Scenario 3 reflects the potential problems of obtaining diluent, including the difficulties of keeping the PetroPiar Upgrader running, which would reduce the capacity to blend Orinoco belt crude to 400 Kbpd.
• 
  

The graph below shows that in scenario 1, net foreign currency income would remain around $500 million monthly. Still, under the other scenarios (2 and 3), net income for early 2026 would be $340 million, an insufficient sum for the economy.

*Own calculations

Oil Operations

This was a week to reorient export shipments, mainly those scheduled to be taken to the North American market, which will now be redirected to the Far East. The crude destined for India has some OFAC authorization and could be the source of diluent through barter. However, we suspect this authorization will only last until May 27, when all OFAC licenses expire. Natural gas production, particularly that handled by Repsol and ENI for the domestic market, has been negotiated with U.S. authorities. Still, it is unknown how the payment for the supplied gas and the recovery of the accumulated debt with those companies will be handled.

Crude production during the last week averaged 870 Kbpd, geographically distributed as follows, in Kbpd:

• West                  217
• East                   127
• Orinoco Belt     519
• TOTAL.           863

Joint ventures with Chevron now function as PDVSA-only ventures, like pre-General License 41. The management of partner B's contractual volume remains unclear — potentially a new debt?

National refineries processed 205 Kbpd of crude and intermediate products, with a gasoline yield of 74 Kbpd and 76 Kbpd of diesel. The average sale price of barrels marketed under the protection of OFAC licenses, net of debt payment, was $52.12/bbl, and the weighted average was $32.67/bbl.

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

OIL PRICES REACT TO TARIFF MAYHEM

El Taladro Azul  Published  Originally in Spanish in  

LA GRAN ALDEA

In what could be understood as uncertainty by design, the Trump administration's comings and goings regarding its tariff policy are perceived by the market as a credible threat to the robustness of global oil demand, which has ended moving prices up. The immediacy of fundamentals (supply and demand) has not been able to mitigate the threat of an economic landslide on the horizon.

The flurry of new and higher tariffs, announced on the so-called "Liberation Day," was followed this week by a 90-day pause before they took effect, except for those applied to China, which were subsequently modified by a list of exceptions. This apparent change of direction from the White House served as a temporary braking ramp in the fall of oil prices, but the escalation of the trade battle between the U.S. and China continues to fuel the fire.

TRADE, A POLITICAL TOOL

Little comfort is provided to the vulnerable oil market by the fact that U.S. production declined this week, according to the EIA, by one hundred and twenty-two thousand barrels per day (122 Mbpd), to which is added the continued reduction in active rigs, according to Baker Hughes, this week there was a drop of 9 drilling rigs in oil basins (26 fewer than a year ago). Not even the fact that there are 56 fewer rigs globally than a month ago has affected the market. A reduction in production of 200 Mbpd, which we estimate would result from the reported reduction in active rigs, should be a significant catalyst in the market. Still, under current conditions, it does not even cause volatility. On the contrary, what appear to be the erratic reactions in the battle of tariffs of Trump, Xi Jinping, and even Ursula von der Leyen, the President of the European Union, are quickly reflected in market prices, which end up magnifying the materiality of their decisions.

The increase in tariffs on Chinese products occurs in a highly asymmetric and volatile trade context, with Trump opening a 90-day waiting period during which the rest of the world's economies will have a 10% tariff. The EU and other countries took the American decision optimistically and began discussing negotiating. For example, the President of the European Commission, Ursula von der Leyen, announced that the EU has suspended its 25% retaliatory tariffs on U.S. products for 90 days; this applies to twenty-one billion euros in American products.

China, the power that Trump seeks to neutralize, is responding to the U.S. decision to increase levies, although it has said it is unwilling to go further. The mutual escalation has reached 145% for Chinese products and 125% for American products. China will increase its tariffs on all U.S. products starting April 12. This is the latest response from the Asian power to the tariff imposition by the United States, which currently maintains trade barriers of 125% against its rival, which are added to an extra 20% tariff that the U.S. administration links "to the production of fentanyl." Therefore, the total tariff burden on China amounts to 145%.

Indeed, the trade relationship between China and the U.S. favors the former, and the reason for the U.S. administration taking the first step is by imposing tariffs. However, the "eye for an eye" between the two countries has become a power game, where both sides remain reluctant to back down before the adversary. The result of this irrational escalation is challenging to predict, as in the extreme, it could mean a breakdown of essential supply chains, a relapse of the Chinese economy, and potential stagflation in the U.S. economy, the largest producer and the second-largest consumer of oil, respectively. This would imply a transformation that would alter the international economic order and foster tendencies toward forming regional economic blocs.

Oil was excluded from the general distribution of tariffs, perhaps to avoid affecting the "drill, baby drill" vision, despite losing currency since its launch during the U.S. electoral campaign. It is almost impossible to isolate oil activity from the vicissitudes of the probable reduction in energy demand, a product of the global economic slowdown. As we mentioned earlier, oil investment budgets are already being cut globally, as reflected in the drop in rig activity reported by Baker Hughes.

Current prices are too close to the economic limits of many production fields, including some located in the sedimentary basins of shale oil in the U.S. We estimate that nearly seven hundred thousand barrels per day (700 Mbpd) are in a situation where maintaining production, servicing the operator's debt, and remunerating shareholders becomes an unlikely financial juggling act. The economic pressure of downward prices is already being felt even in Vaca Muerta (Argentina), one of the most prolific basins in the region.

Regarding the internal economic situation of the U.S., the increase in treasury bond yields and the weakening of the dollar form a scenario of increasing debt service costs, contrary to the declared objective of the administration, which will now have to strive to reverse this setback. This is why Trump is pressuring and challenging the Federal Reserve (FED) to lower interest rates. Jerome Powell, the FED chairman, insists on following the data while wanting to demonstrate his independence from executive power, so despite the good behavior of inflation, but with an expectation of a rise, the FED might opt to postpone the subsequent interest rate reduction.

However, despite all this somber framework, we should not rule out a scenario in which, during the 90-day suspension, most countries reach an agreement, and in a continued environment of distrust, Trump and Xi reach a package of the accords, perhaps not optimal, but that both can present as a victory. In this sense, smartphones and computers are among the many technological devices and components that will be exempt from the reciprocal tariffs imposed by President Trump, according to new guidance from U.S. Customs and Border Protection, issued late Friday night.

Earlier this month, this decision came after Trump imposed historically high tariffs on products from China, threatening to affect tech giants like Apple, which manufactures iPhones and most of its products in China. Contrary to the strategy of attracting factories to the U.S., the new tariff guidance also includes exclusions for other electronic products, including laptops, semiconductors, solar cells, flat-screen television screens, flash drives, memory cards, and solid-state drives used to store data. This "exception" was questioned by President Trump himself last Sunday, when through his social network "TRUTH," he emphasized that no one will be exempt from tariffs and that these products will be subject to the so-called "fentanyl tariff" and then to additional tariffs. Still, they will likely be much lower than the 145% rate imposed initially. This latest clarification from the Trump administration exemplifies the orders and counter-orders that sow uncertainty among economic actors.

Although oil was not directly affected by the tariffs, the trade war between the U.S. and China will affect the commercial exchange between those countries and cause an imbalance in the fundamentals of the oil market: supply, demand, trade flows, and prices. A dispute between economic giants in a market as interconnected as energy will generate global effects.

OPEC+, INOPPORTUNE OR TOOK ADVANTAGE OF THE SITUATION?

Last week, OPEC+ announced an acceleration in opening up previously closed volumes, contributing to falling prices. Several theories have been proposed about this decision, which may seem contradictory. Current market conditions are robust, and demand continues to exceed supply; however, the market's primary focus is on the possible adverse effects of the trade war due to the revision of trade balances and tariffs between the U.S. and other countries. According to some, the cartel's decision presents an opportunity to adjust the volumes of available capacity that member countries claim to have and a way to increase supply without a significant market reaction. Some announced volumes may not appear, and the market could recalibrate its perception of OPEC+'s real response capacity.

A recently announced development, direct negotiations between the U.S. and Iran in Oman about Tehran's nuclear program, must necessarily be seen in the context of OPEC+ activities. Iran, one of OPEC's members, could change its current position of flagrantly ignoring U.S. sanctions on its crude exports, at least during this stage of the negotiations. If so, oil exports to China could fall from the record of one million eight hundred thousand barrels per day (1.8 MMbpd) in March, partially offsetting the increase announced by OPEC+ if it materializes.

The Israeli press revealed that the U.S. envoy for the Middle East, Steve Witkoff, and the Iranian Minister of Foreign Affairs, Abbas Araghchi, "spoke briefly" during the negotiation in Oman. The first face-to-face meeting between U.S. and Iranian officials in years seemed to be a way for both parties to save face after U.S. President Donald Trump announced earlier in the week that the talks would be direct. At the same time, Araghchi insisted they would be indirect. In a statement released Saturday afternoon, the White House described the discussions with Iran as "very positive and constructive." However, it admitted that the issues that must be resolved "are very complicated."

PRICE DYNAMICS

The oil market was subjected to an extreme stress test, evidenced by the volatility shown during the week. China's imposition of retaliatory tariffs shook oil prices below the unthinkable $60/bbl for Brent crude. The announcement that President Trump had offered a negotiation period to countries that had shown openness in balancing their trade relations with the U.S. promoted a price rebound.

The week ended with the barrel price slightly up, but insufficient to avoid another week of losses: 1.25% compared to the previous week. At the close of the markets on Friday, April 11, 2025, the benchmark crude oils Brent and WTI were quoted at 64.76 and 60.5 $/BBL, respectively.

VENEZUELA

THE IMPERIAL WAR: THE WORN-OUT ENEMY

Venezuela's political and economic situation continues on a bumpy road. Miraflores' tone is becoming aggressive. The new strategy is to denounce "the Imperial War" against the world, as the vice president called it, trying to resurrect a political narrative from the 1960s that only resonates among its supporters and the conciliatory opposition. Paradoxically, the regime continues to make appeasing gestures toward the White House: more than 2,000 Venezuelans have been repatriated from the U.S.

The regime is preparing for what it perceives will be difficult times due to the suspension of oil licenses, secondary tariffs on those who acquire Venezuelan hydrocarbons, and the reduction of income due to the fall in international oil prices alone. In this context, Maduro announced an economic emergency decree approved by the National Assembly, which the TSJ (Supreme Court of Justice) has already ruled as constitutional. Initially valid for sixty days, this decree allows the executive to suspend constitutional guarantees and empowers it to dictate political, economic, and social measures without restriction. Vice President Delcy Rodríguez justified it as necessary to confront the "Imperial War."

The board of directors of the Central Bank of Venezuela was also wholly restructured. The new president, Laura Carolina Guerra Angulo, is a petroleum engineer with little or no experience in monetary policy but is the sister of Nicolás Maduro's ex-wife. It is commented that the members of the new board are related to the management of cryptocurrencies, issues that in the past have been embroiled in scandal. These extraordinary measures accompany the already known ones: reduction of public spending, limited intervention in the foreign exchange market, restriction of bank credit, and rapprochement with China.

The most surprising of the measures executed by the regime was the cancellation of authorizations to Chevron to continue loading crude oil, as it had been doing under general license 41B. Two of the cancellations involved tankers that had already loaded, so the oil would have to be returned to land. In contrast, according to one of the sources, a third had not loaded. Indeed, according to sources close to the operation, the vessels chartered by Chevron, Dubai Attraction, and Carina Voyager remained loaded in Venezuelan waters, and they are awaiting documentation for their unloading.

The tanker Carina Voyager was destined for Chevron's Pascagoula refinery. At the same time, according to the sources, the Dubai Attraction was scheduled to transfer its cargo to the tanker Cap Corpus Christi, chartered by Valero Energy, off Aruba. Similarly, other tankers scheduled to load this month, Pegasus Star, Ionic Anax, Calypso, and Sea Jaguar, saw their authorizations suspended. Vice President and Minister of Oil Delcy Rodríguez said that Chevron has to return the crude to PDVSA due to the "restrictions to pay due to the economic war" of Donald Trump's Government.

Although there has been no official confirmation from Chevron or OFAC, this is about the interpretation we hinted at last week, that license 41-B only authorized Chevron to acquire crude produced or in inventory until April 2, under the conditions established in license 41. After that date, the crude was considered outside the license, and Chevron would not be authorized to make the corresponding payments, which is why PDVSA demands its return. So, everything indicates that the period for the entry of Venezuelan crude into the U.S. under the OFAC license regime has concluded. However, a shipment of crude oil has already departed for India in a VLCC chartered by Reliance, presumably with an OFAC "waiver," but this has not been confirmed as it is a private license. With the diversion of Repsol's tankers and the cancellation of Chevron's shipments to the U.S., all Venezuelan crude will be destined for the Far East and Cuba.

The combined effect of low international prices, the requirement to severely discount Venezuelan crude prices to place them in Asia, and the absence of remuneration for exports to Cuba reduce revenues from the sale of hydrocarbons by approximately half. The problem of buying diluent and fuels necessary to maintain the dilution process of the Orinoco Belt crude and satisfy the domestic market is not resolved yet.

But even before that effect began to be felt, interventions in the foreign exchange market had already been insufficient. The official exchange rate was devalued by 18%, and the gap with the parallel rate was above 30%. These numbers are taking annualized inflation to levels almost considered "hyper."

Oil Operations

This week, the electricity crisis has profoundly affected oil activity. Operations at the Jose terminal in eastern Venezuela and the Paraguaná refineries were affected. At Jose, this meant reduced loading and unloading capacity and, in the refineries, less fuel production for the domestic market. National refineries processed 196 Mbpd of crude and intermediate products, with a gasoline yield of 68 Mbpd and 76 Mbpd of diesel.

Crude production during the last week averaged 870 Mbpd, geographically distributed as follows:

• West                219 (Chevron 103)
• East                 127
• Orinoco Belt   524 (Chevron 118)
• TOTAL.          870 (Chevron 221)

In Chevron's daily activities, a reduction in service company activity was observed, possibly as part of the "wind down" established by general license 41B. This reduction in service company activity, rather than its transfer to PDVSA, leads us to think that maintenance after Chevron's departure will be minimal. This is coupled with a lack of incentives on Chevron's part to continue until the end of the license, as it cannot acquire and market crude oil or receive debt amortization.

In that case, the mechanical decline due to lack of maintenance could reach 6% in Boscán and 8% in the joint ventures (JVs) of the Orinoco Belt by the end of the year, i.e., a drop in production of approximately ten thousand barrels per day (10 Mbpd) in the JVs managed by Chevron, until now. This drop in production could be substantially more significant if the operation of the PetroPiar upgrader followed the fate of the other three upgraders.

The week's exports have been affected by the power outage, the change in Chevron's management, and the uncertainty of China's purchases, which should be dispatched to Malaysia and Singapore. The average sales price of barrels marketed under OFAC licenses, net of debt payment, was $49.8/bbl, and the weighted average price for all exports was $32.1/bbl.

1: International Analyst 2: Nonresident Fellow Baker Institute