El Taladro Azul Published Originally in Spanish in LA GRAN ALDEA
When we started this section in La Gran Aldea two years ago, we never imagined that we would reach this milestone: edition number 100. In that first edition, we discussed OPEC+ and how their actions pushed oil prices upward. At that time, the corruption scandal at PDVSA regarding its international sales was also in the news, and Chevron's participation in Venezuela's production was beginning to be relevant. OPEC+ decisions continue to be a central focus of the oil market. Still, this time, it is in a completely different environment, full of uncertainties and with a global economy threatened, among other things, by the increase in tariffs imposed by the Trump administration. Meanwhile, the news in Venezuela is Chevron's departure and its effects on the domestic economy.
We continue to try to understand the complex web of the global hydrocarbon business and the particularities of Venezuela. It is an effort that sometimes takes us in circles but which we do with professionalism and affection for an industry that has defined modernity like few others.
M. Juan Szabo1 and Luis A. Pacheco2
Financial markets went into disarray following President Trump's announcement of his tariff policy, which turned out to be larger and broader than expected. Fears that the Trump administration's announced tariff policy would cause a recession wiped out more than five trillion dollars in value from U.S. stocks; stock markets in the rest of the world also suffered substantial losses.
Oil stocks and prices were no exception to this debacle. Oil prices have fallen to their lowest level in four years (since the pandemic). The escalation of global trade tensions was compounded by disagreements within OPEC+, which led to a surprising and untimely announcement of increased production by eight of the association's members. To complete the triad, commercial crude oil inventories in the U.S., which suggests slowing demand, reported a substantial increase.
The actions of the U.S. administration are based on the premise that its trading partners have become accustomed to exporting to the U.S., more or less without barriers, but that, with the excuse that the U.S. is the largest economy in the world, those same countries impose tariffs and bureaucratic and environmental barriers on U.S. exports; a premise that is not entirely unfounded. However, it remains to be seen whether the chosen medicine does not kill the patient, as others argue.
Susceptible to the fear of imminent loss, markets reevaluate how they view the short and medium-term. Some predict that we are on the way to a global recession and more volatile markets, which is the current dominant opinion. Others are convinced that once the real intention of the concept of reciprocity and implementation and negotiation of tariffs is understood and the "herd mentality" effect of capital markets is overcome, normality will return with more balanced global commercial realities.
Fundamentals
According to JP Morgan's chief economist, Bruce Kasman, the tariffs that President Trump announced this week to his trading partners would likely lead the U.S. and global economy into a recession in 2025. If they are maintained as announced, the risk of recession in the global economy this year has increased from 40% to 60%. A recession would adversely affect oil demand; this extrapolation is behind the collapse of oil prices during the week.
On the other hand, and within the same unease in the markets, the dollar has lost all its gains since Trump won the presidency in November. The "Bloomberg Dollar Spot" index fell on Friday to its lowest since mid-October. This indicator rebounded 5% after the U.S. elections and continued to strengthen during the year's first quarter. In the tail of the financial hurricane of tariffs, the dollar, so far this year, shows a loss of 5.19%. However, the weakening of the dollar, which usually tends to strengthen oil prices, had no effect in stopping their fall; after all, the last week was far from normal in any market.
OPEC+ surprised the market with one of its most untimely decisions since its formation. Eight OPEC+ countries unexpectedly agreed on Thursday to move forward with their plan to gradually eliminate oil production cuts, signaling an increase of 411 MBPD in May, equivalent to three months of the production increases contemplated in their previous plan to dismantle their production cuts gradually.
This decision was made at a virtual meeting of the eight countries of the group (Saudi Arabia, Iraq, UAE, Kuwait, Algeria, Russia, Kazakhstan, and Oman) in what could well be called a "black Thursday." According to the announcement published by OPEC, the justification for the change is the persistence of healthy market fundamentals and positive prospects, adding the usual codicil that: "Gradual increases could be paused or reversed according to the evolution of market conditions." The unexpected increase in production, starting in May, appears to have been designed to offset disruptions in crude oil supply from Iran and perhaps Venezuela, caused by reinforced U.S. sanctions on those countries.
Despite the cartel's arguments, the announcement led oil prices to extend the heavy losses that began with the EIA's announcement of an increase in U.S. commercial inventories (6.2 million barrels). The drop turned into a collapse of more than 4% following President Trump's announcements, and OPEC completed the bad signals. Prices lost about 10%, breaking through the floor of 70 $/BBL for Brent crude.
Not even a better-than-expected report on the U.S. labor market, which is usually the economic highlight of each month, nor the weakening of the dollar, were able to stop oil's fall. With an oil market battered by the week's shocks, it is mentioned that Trump could visit Saudi Arabia next month.
The 10% collapse in oil prices may be an overreaction from a market that assumes that White House announcements will provoke adverse reactions, as in the case of China, which announced a 34% tariff on all U.S. imports and a trade war that could lead to reduced growth and, if poorly managed, recession. On the contrary, if, as some argue, the underlying objective of the policy is to force a negotiation to achieve more symmetrical agreements, the damage perceived today will be short-term. Only time will answer this.
The media, especially in those regions that consider themselves most affected by the new realities, have contributed to highlighting the potential uncertainties of what is to come. It was inevitable that such an important issue would become a focus of polarized positions, all apparently well-founded.
Oil demand remains above 104 million barrels per day, sustained by increases in China, India, and other developing countries. Supply, for its part, is showing a lag concerning forecasts, partly due to unscheduled interruptions and the way of accounting for the entry of new projects, which are commonly displayed at capacity from their entry into operation when, in reality, they require a prolonged period to achieve the so-called "ramp up." This balance can change with recent events, but we must wait for the waters to return to their level to evaluate it appropriately.
In the case of the oil market, when the initial commotion dissipates, it is expected to return to the realities of the fundamentals. Unless a "Great Depression" type debacle occurs, oil prices should not remain at their current levels because investments in the generation of new production would be reduced, and supply would decline proportionally, seeking a balance of prices at higher levels. This coming week may give us better indications.
GEOPOLITICS
Market orthodoxy is postulated on the idea that geopolitical tensions in producing regions, particularly the Middle East, drive oil prices up. However, during the last few years, each rebound, for geopolitical reasons, has ended up weakening. Hence, the market now recognizes that geopolitical tensions do not necessarily lead to reduced production or transport problems. Such is the situation during the last few days, when the perception of geopolitical risk, which continues, has had little to do with the movement of prices and has been relegated to the background.
On the Ukrainian front, the problems in reaching a ceasefire agreement, even a temporary one, have distanced Trump and Putin. The Russian insistence on taking Zelensky out of the equation, which has been objected to by all parties involved, plus their position of adding new conditions to the already long list, has forced U.S. President Donald Trump to threaten new sanctions against Russian oil.
Sergey Ryabkov, the Russian deputy foreign minister, complained that the U.S.-led talks "leave no room for Russia's central demand." Russian officials have repeatedly invoked the term "root causes," which Putin said last June included Ukraine's withdrawal from partially Ukrainian regions and abandoning its NATO candidacy.
In the Middle East, Israeli troops were expanding their territorial control in northern Gaza, the army reported on Friday, days after the government announced plans to take large areas through an operation in the southern strip. In the deepening war against Hamas, Israel eliminated a Hamas commander, Hassan Farhat, in an airstrike in south Lebanon on Friday, further testing the ceasefire that stopped last year's war between Israel and the Lebanese militant group Hezbollah.
The Houthis announced that on Saturday, Yemeni drone forces attacked an Israeli military site in the occupied area of Jaffa (Tel Aviv). Still, Israel reported intercepting a drone "from the east" over the Arava region in the south. None of these events affected global crude oil production and transport nor affected the market's perception of geopolitical risk in the oil market.
PRICE DYNAMICS
In a week, when the possibility of a trade war between the U.S. and its trading partners was floating over the market, it reacted downward, as did most markets. In addition, OPEC+ announced an unexpected increase in oil production, which added additional downward pressure on prices, which plummeted 10% compared to the previous week, reaching prices not experienced since the pandemic. Thus, at the close of the markets on Friday, April 4, 2025, the Brent and WTI marker crudes were quoted at $65.58/bbl and $61.99/bbl, respectively.
VENEZUELA
CHINA, AN EXPENSIVE REFUGE
World events are happening so quickly that, although they keep the Venezuelan regime off balance, they force them to play on two boards from a disadvantageous position. On the one hand, they try to keep the doors of negotiation with the White House open, responding to its demand for acceleration of flights of deported Venezuelans. This week, the frequency of flights increased to 5. Already, nearly 1000 deportees have been received in Maiquetía. They have also announced the seizure of drug shipments and those responsible for their handling in an attempt to appear diligent in front of the DEA.
On the other hand, the preponderance of signals from Washington points toward a policy of maximum pressure on Venezuela, although these signals are not entirely clear either. For example, there are two interpretations of the wind-down period of license 41B. The most obvious, which stems directly from reading the License, sets the end of the dismantling for May 27, the date by which the operation and preservation of the licensees' assets must be concluded, and Chevron would leave the country. The other more speculative interpretation establishes that the end of operations under the licenses concludes on April 2, and the wind-down period begins, which must end on May 27. In the first reading, crude produced by the joint ventures where Chevron participates between April 2 and May 27 can be considered authorized crude and could continue to have access to the U.S. The second reading is more restrictive, and the crude from those companies should be regarded as sanctioned from April 2 onwards.
Due to this dichotomy, the regime, to "play it safe," has already begun to dust off the mechanisms used to circumvent the sanctions of 2019, which essentially consist of marketing the crude in the Far East, using intermediaries, which, through operational and administrative convolutions, manage to hide the origin of the crude to be able to enter China. It remains to be confirmed how China will handle the situation of sanctioned crudes, fleets, and intermediaries and the secondary tariffs that the U.S. has threatened to impose.
Judging by the Chinese statements so far and the rapid imposition of 34% tariffs on U.S. goods, it would appear that Venezuelan crude has as its only obstacle to reaching China the intense competition from Iranian and Russian crudes. However, it is clear that the costs associated with transporting volumes of sanctioned crude and the discounts that must be given to enter Chinese refineries represent a significant drop in income from hydrocarbon sales of about 30 $/BBL, even if volumes can be maintained.
The reduction in oil earnings will have repercussions on the Venezuelan economy, limiting the foreign exchange available for the market. This may be partially resolved by printing money, limiting public spending, devaluing the official Bolivar, and creating an uncontrollable gap between the official exchange rate and the parallel market.
In this challenging panorama, the board of the Central Bank was changed. Bloomberg reported that two members had left their positions on Thursday, citing people familiar with the matter. Sohail Hernández, the bank's first vice president, and Iliana Ruzza, the vice president of international operations, left the bank after opposing the country's vice president's plans to informally incorporate a volume of gold into the country's international reserves.
In the political sphere, the date of the general and regional elections has not been rescheduled, as rumored. According to the CNE, elections will occur on May 25, although those close to the regime think there is not enough time to meet that date. The divergences within the opposition continue. While the vast majority of the current of María Corina Machado and the PUD maintain that the electoral system is unviable until the results of July 28 last year are recognized, another group, led by Henrique Capriles, created a group called "Venezuela Decide" that advocates participating in the elections. Within the PSUV, the ruling party, there is some turmoil. In what can be viewed as a purge, only a few governors were approved for re-election.
Oil Operations
Crude oil production during the last week averaged eight hundred and seventy-five thousand barrels per day (875 Mbpd), geographically distributed as follows:
- West 222 (Chevron 106)
- East 127
- Orinoco Belt 526 (Chevron 120)
- TOTAL 875 (Chevron 226)
The continuing crisis in the electricity sector has interrupted the operations of the Paraguaná refineries, although the impact was minor. The national refineries processed 210 MBPD of crude and intermediate products, yielding 74 MBPD of gasoline and 75 MBPD of diesel. The PetroCedeño upgrader used to produce intermediate products for the refineries was out of service for most of the week due to the H₂S leak that occurred last week.
No indications of the dismantling processes of the operations of the companies licensed by OFAC have been observed. In fact, efforts were concentrated on loading as many vessels as possible. The high number of VLCCs (Very Large Crude Carriers) that were surrounding Jose during the second half of March was due to the interest in intensifying that flow in preparation for the possible closure of the North American market and to deliver the largest amount of crude to China, anticipating a negative decision from that country regarding the threat of secondary tariffs. An interesting situation to monitor is the flow pattern of tankers at Chevron's service, which should give us clues about the plans of this multinational company as it faces the termination of its activities.
Exports of crude and products for the month of March were higher than in previous months. 803 Mbpd were exported to the following destinations: China, 480 Mbpd; USA, 217 Mbpd; India, 60 Mbpd; Europe (Italy), 30 Mbpd, and Cuba, 16 Mbpd. The commercial segregations exported were: Merey-16 562 Mbpd, Boscán 106 Mbpd, Hamaca 96 Mbpd, and Corocoro 30 Mbpd. The average sale price of barrels marketed under the protection of OFAC licenses, net of debt payment, was 50.7 $/BBL and the weighted average 33.27 $/BBL.
1 International Analyst
2 Nonresident Fellow Baker Institute
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