M. Juan Szabo [1] y Luis A. Pacheco [2]
Published Originally in Spanish in LA GRAN ALDEA
With barely less than 7% of the presidential term elapsed, the Trump administration has shaken up more issues than most other presidents in their entire term. The White House has declared war on world trade, aiming to reverse the U.S. trade deficit. It has launched a domestic campaign to try to dismantle what it defines as "Deep State" structures. It has actively involved itself, with mixed results, in Middle East conflicts and the Russia-Ukraine war. Likewise, it is confronting the problem of illegal immigration, inefficiency, and federal government bureaucracy. Not to mention its strategy of promoting an energy policy based on low-priced fossil fuels. With such an agenda, which we only summarize here, it is not surprising that not everything is going as the White House tenant imagined, which, added to his controversial style, has caused a significant drop in approval ratings for his administration. However, some pieces of the puzzle are starting to fall into place.
- Wall Street extended its gains for the ninth consecutive day, marking its longest winning streak since 2004 and recovering some ground lost since President Donald Trump intensified his trade war in early April. The S&P 500 rose 1.5%. For the week, the Dow Jones Industrial Average advanced 1.4%, and the Nasdaq Composite rose 1.5%, although the indices are still below what they achieved at the beginning of the year.
- Total non-farm payroll employment in the U.S. increased by 177,000 in April, and the unemployment rate remained at 4.2%, which was better than expected.
- China exempted ethane from the U.S. from applying the 125% tariff, and there are indications of bilateral interest in negotiating the rest of the trade relations.
- Despite Putin proving to be more complex than Trump imagined, the signing of resource exploitation agreements with Ukraine and Russian budgetary problems indicate that it is still possible, if not an end to the war, at least an armistice, in a reasonable timeframe.
- The determined support for Israel, nuclear negotiations with Iran, the reinforcement of sanctions against Iranian exports, confrontation against the Houthis, and rapprochement with Saudi Arabia are evidence of a reordering that could pacify the region. Although it is also true that no solution is in sight for the Palestinian population problem, and their desire for political and territorial sovereignty.
- Finally, by design or coincidence, oil prices continue to fall, which has prevented the tariff war from directly affecting inflation. This has allowed bilateral agreements to be reached, enabling trade to flow again with fewer setbacks.
Despite the above, the world in general, and the oil market in particular, perceives disorder and uncertainty, and that confrontations are leading the economy into a global recession, which would materialize in energy markets as a reduction in demand. This conviction led oil futures to fall during the last week to levels not seen since February 2021.
The attitude of OPEC+, pointing to an increase in crude supply for May and June greater than planned, does not bode well for the oil market. However, the possibility that the producing countries cannot increase the announced 1.0 MMbpd in the next three months should not be ruled out.
Fundamentals
The oil market, already intoxicated by excess news and apocalyptic predictions that have led to falling crude prices, must now face the decisions that resulted from the OPEC+ meeting this weekend. The cartel, unexpectedly, has announced the continuation of its strategy, promoted by Saudi Arabia, of accelerated production opening (+411,000 barrels per day for June), despite what we assume is the opposition of countries that cannot increase their production, and those whose economies depend heavily on oil prices. Saudi Arabia is signaling to allies and industry experts that the kingdom is not willing to prop up the oil market with more supply cuts and that it can handle a prolonged period of low prices.
This change in Saudi policy suggests a move towards regaining market share, a significant change after five years dedicated to balancing the market and defending prices, through a deep reduction in its production as the leader of the OPEC+ group of oil producers. The change seems too significant to be only a punishment for OPEC+ members who exceed their quotas. Saudi Arabia seems convinced that returning to the pre-pandemic situation, when it was in a price war with Russia, is its best option, believing that they are better equipped from the point of view of production costs and financial resilience.
One could postulate that a price war seeks to remove the least economical production from the market, a strategy that the Saudis have used in the past, not always successfully. Likewise, it is not far-fetched to think that this plays into the Trump strategy, since the strong sanctions and secondary tariffs against Iranian and Venezuelan crude could be compensated by the only country that may have idle capacity to open in the coming months, and not excessively damage the economies of North American shale oil, which is on a plateau.
Meanwhile, drops in exports from countries such as Nigeria, Iran, Mexico, and Venezuela would also mesh with the Saudi plan to reconquer markets, and would involuntarily be in line with Trump's low-price strategy. Trump will visit Saudi Arabia in May and could offer Riyadh a weapons package and a nuclear deal, who knows if the concept of bilateral energy domination will be on the agenda?
On the other hand, after taking a tough position in the face of Trump's tariff threats, China indicated that it is evaluating a proposal from the Trump administration to negotiate tariffs, which would lower the levels of friction between the two powers. Japan and Korea would call for a review of all tariffs, including spare parts and auto parts.
In the U.S., production and oil activity remain stable and depend on price movements, which have been eroding companies' cash flows. According to the weekly EIA report, commercial crude inventories showed a slight reduction of about 2.7 million barrels, while gasoline inventory was reduced by 4 million barrels, despite increases in refining runs.
The Trump administration proposed cutting the federal budget by $163 billion this Friday, increasing the amounts allocated to defense and border security, and reducing education, health, and social security items. The proposal would considerably cut renewable energy projects, climate change, and electric vehicle chargers. It would allocate Department of Energy funds to technologies oriented towards gas, coal, minerals, and nuclear reactors. This is a small step in the objective of reducing debt, and it will affect social, environmental, and energy policies.
Geopolitics
Regarding the geopolitical situation, the week brought old and new tensions. A new focus of dangerous frictions emerged this week between two neighboring nuclear powers, India and Pakistan. In the Kashmir region, controlled by India, 26 civilians, mainly tourists from India, were brutally murdered by Islamic terrorists, allegedly based in Pakistan. Indian Prime Minister Narendra Modi warned that his country "will punish all terrorists and those who support them." The message was directed at neighboring Pakistan, which India accused from the beginning of being behind the deadliest attack in the region since a suicide attack against paramilitary forces in 2019. Islamabad denied any connection to the massacre. Since the attack, threats of a new armed confrontation between Indians and Pakistanis have been increasing. Pakistani authorities claim to have information about an imminent Indian military attack.
Regarding tensions in the Middle East, nuclear talks between the U.S. and Iran have reached a stalemate, but there has been no official information from either party. In any case, the U.S. warned Iran to refrain from militarily supporting the Houthis in Yemen and established secondary tariffs on buyers of crude and products exported by Iran.
War skirmishes in the region increased in intensity. The Israel Defense Forces (IDF) reported that they bombed a military site, anti-aircraft guns, and land-to-air missile infrastructure in Syria, in a recent operation that is framed in the context of growing tension on this new front. In a brief statement, the IDF noted that they "will continue to act as necessary to protect the citizens of the State of Israel," without specifying the exact location of the targets hit or additional details about the motivation, date, or duration of the attack. This series of attacks occurred on the same day that Israel bombed positions near the presidential palace in Damascus, an action that Syrian authorities described as "a serious escalation against State institutions and their sovereignty."
On the Russian-Ukrainian front, things are not clear either. The meetings seeking peace have moved to various historic sites: an ornate Kremlin hall, St. Peter's Basilica, and a controversial session in the White House Oval Office. What has emerged so far from the Trump-led effort to end the war suggests a deal that is likely to be favorable to Russia. President Donald Trump has harshly reprimanded Ukrainian President Volodymyr Zelensky, indicating to him that Kyiv would have to cede territory and renounce its NATO membership.
On Wednesday, Washington and Kyiv signed an agreement that gives the U.S. access to Ukraine's mineral resources. This could allow continued military aid and fund the reconstruction of a country with enormous destruction. Among these mineral resources are rare earths, an important element in negotiations with China. Trump recently approved funds for the training and maintenance of F-16 fighter jets in Ukraine.
The agreement will demonstrate to "Russian leaders that there is no distance between the Ukrainian people and the American people, between our objectives," said U.S. Treasury Secretary Scott Bessent, after the signing. The Ukrainian parliament must decide on the approval of the agreement on May 8 of this year. Putin might be thinking of modulating his intransigence, pressured by the U.S. and the tripling of his budget deficit, the fall in oil prices, and the effects on his energy infrastructure.
Price Dynamics
Oil prices have shown a downward trend during the last week, guided by uncertainty about supply and demand. Brent crude has fallen 8.3%, at $61.29/bbl, while W
TI crude has dropped 7.6%, reaching $58.29/bbl, at the close of markets on Friday, May 2, 2025.
Note: At the beginning of the new week (May 5), prices continue to fall due to the OPEC+ decision.
VENEZUELA
The absence begins to be felt
The early cancellation of Chevron shipments to the U.S. market evidenced the importance that the licensed activities of that oil company had for the economy: support for the foreign exchange market, sustaining oil prices perceived by the State, and as leverage for oil exports. All these elements are beginning to kick in now, even though Chevron's absence was already effective in April.
In a display of economic fiction, the Central Bank of Venezuela (BCV) announced that the national economy registered a growth of 9.13% in the first quarter, trying to camouflage what is clearly an impending recession. The Venezuelan Finance Observatory had already reported a decrease of 2.7% for the same period.
The lack of sufficient foreign currency in the exchange market accelerated the BCV's devaluation, which took the dollar price to Bs 86.64. This is an increase of around 60% this year and maintains a wide gap of 23% with the so-called "war" dollar, which private actors are forced to resort to to finance imports.
Despite all direct indications from the Trump administration that we are in a scenario of maximum pressure, Maduro still seems to harbor hope that conversations and lobbying will achieve some agreement to mitigate the effect of maximum pressure. As we mentioned in previous weeks, it is evident that some political contact exists, and the week-to-week coordination of repatriated Venezuelan flights to the country reinforces that notion—this Friday, two flights arrived, one direct from Texas and the other via Honduras.
It is also noteworthy that the CEO of Repsol, Josu Jon Imaz, and the new Prime Minister of Trinidad and Tobago insist they are in active negotiations with the U.S. government to maintain their operations in Venezuela. In the case of Repsol, it is important for its permanence in Venezuela. In the case of Trinidad and Tobago, it is essential to carry out joint offshore gas developments, which are vital for the island country's economy. Finally, and perhaps more indicative that something is brewing, is the presence and return of tankers chartered by Chevron that remain anchored in the vicinity of Aruba.
The traditional salary review of May 1 was carried out again, using indexed bonds, called "Indexed Comprehensive Minimum Income of Workers." Non-government workers gathered in Plaza Venezuela, in Caracas, to protest salary inaction and march to Parque Carabobo, west of the city, but National Police (PNB) prevented the mobilization.
The general elections, scheduled for May 25, have not aroused much interest from voters. Most find it difficult to participate in the same electoral system used in the presidential elections of July 28 last year, whose results continue to be questioned.
By the way, in these new elections, the National Electoral Council (CNE) has scheduled the election of a governor for the disputed territory of Esequibo. The International Court of Justice (ICJ) reaffirmed on Thursday, unanimously, its provisional measures granted in December 2023 in the territorial dispute between Venezuela and Guyana and ordered Nicolás Maduro's regime to refrain from holding or preparing elections in that territory. That order is sure to be ignored.
Oil Operations
Activities in hydrocarbon production centers remained at a relatively constant level. However, export operations or tanker loading for floating storage have been challenging to follow, affected by cargoes loaded and returned by Chevron, the presence of zombie tankers, whose real identities and locations are more of a detective job than an oil analyst's work. Vitol (one of the big oil and products traders) appeared on the scene, taking Venezuelan crude and bringing diluent and gasoline. The same is true with Harry Sargeant's company, which remained active in the Venezuelan hydrocarbon trade but canceled its commitment to reactivate the Curaçao refinery. The PetroPiar upgrader in eastern Venezuela was stopped, apparently for maintenance reasons unrelated to Chevron's eventual exit.
Crude production, during the last week, averaged eight hundred and sixty-eight thousand barrels per day (868 Mbpd), geographically distributed as follows:
Area Mbpd
- West 218
- East 126
- Orinoco Belt 514
- TOTAL 868
National refineries processed 220 Mbpd of crude and intermediate products, with a gasoline yield of 77 Mbpd and 80 Mbpd of diesel.
The average sale price of barrels marketed under the protection of OFAC licenses, net of debt payment, was $45.91/bbl, and the weighted average of all exports was $30.23 $/BBL. Starting in June, with all licenses canceled, barring any unforeseen change, price information and amounts collected will be much more difficult to obtain, due to the complexity of tracking crude shipments from Venezuelan ports and areas designated as ship-to-ship transfer (STS).
Until now, tankers have been loaded at Jose, Bajo Brande, and La Salina terminals, and transshipments have been carried out outside Amuay and Aruba. Cargoes originating at Lake Maracaibo terminals end up loading larger tankers that transport them to the final destination or designated sites to complete the origin cleaning process. The procedure in April was so complex that traditional sources for export figures differ considerably. The difference lies in the month's cutoff time and the ability to account for reformulated cargoes on the high seas.
We estimate that April's exports were 610 Mbpd of crude and 83 Mbpd of residual fuel. 375 Mbpd were sent to China, 129 Mbpd to the U.S., 64 Mbpd to India, and 32 Mbpd to Cuba. The exported segregations were Merey-16, 484 Mbpd; Boscán, 78 Mbpd; Hamaca, 36 Mbpd; and Blend-22, 12 Mbpd.
[1] International Analyst [2] Nonresident Fellow, Baker Institute
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