El Taladro Azul Published Originally in Spanish in
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.
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
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