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.
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
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