M. Juan Szabo [1] y Luis A. Pacheco [2]
Published Originally in Spanish in LA GRAN ALDEA
During the week, the market oscillated between concern over possible excess supply and signals of robust demand. Added to this were outbreaks of violence in the Middle East, where ancestral feuds, both ethnic and religious, are never far from the surface.
Likewise, news emerged about events directly affecting the supply/demand balance: the announcement of new economic sanctions against Russia by the European Union; Iraqi drone attacks against Kurdish oil installations, which affected the region's production capacity (250 thousand barrels per day); and force majeure in Ecuador, now in its third week, sowed uncertainty.
Another relevant piece of news, but without material effect on prices, was the arbitral tribunal's decision to favor Chevron in the case against Exxon. This decision gives the green light to Chevron's merger with Hess, a $53 billion transaction that includes assets in Guyana and had been suspended for almost two years. One of the collateral results of the merger is that Chevron moves its Caribbean interests from Caracas to Georgetown, and now becomes an ally of one of the Venezuelan regime's greatest nemeses: ironies of oil.
FUNDAMENTALS
Last week, global oil fundamentals moved to the rhythm of mixed signals. OPEC+'s strategy of continuing to add more volumes to the market, internal problems in Iraq and Ecuador of very diverse natures, and an improved perception of the future of oil demand indicate an uncertain path forward.
Much coverage has also been given to a supposed "boom" in production increases that would materialize across different latitudes. These announcements, some made by producing countries or by specialized companies and analysts, also sow confusion in a world that continues to talk about energy transition. The list of countries includes Saudi Arabia, United Arab Emirates (UAE), Iraq, Canada, Brazil, Guyana, Kazakhstan, Argentina, and even Algeria. It has been announced that, together, these countries would increase production by figures approaching ten million barrels per day (10 MMbpd) over the next 4 years. These production levels place the market in a trembling state of inevitable oversupply.
A preliminary analysis of the feasibility of such growth leads us to think that the mentioned numbers are either publicity exaggeration or represent a generation of incremental potential that would have to discount the natural decline of base production, which generally ranges between 8% and 25%, depending on the basin and type of production under consideration. Additionally, many of the mentioned developments have a control valve: prices. Development will be delayed or canceled if prices indicate that demand is not growing proportionally. Only technology can change this reality, creating new hydrocarbon applications and uses, which appear unlikely in the time horizon being considered.
OPEC+ and Other Producers' Situation
Meanwhile, OPEC+ countries are advancing the dismantling of production cuts they imposed to stabilize the market in the five post-pandemic years. However, in OPEC's monthly report, only growth of around 350 thousand barrels per day is observed, well below the more than 600 thousand barrels per day announced for these dates. In July, despite a projected increase of another 230 thousand barrels per day by the end of the month, this will be neutralized by events in Iraq, which has used drones to attack oil installations in an attempt to resolve its political problems with the Kurds. It is mentioned that the damaged infrastructure has reduced production in that region by around 130 thousand barrels per day on average for this month.
United States
Production is slowly declining in the US, although it remains above thirteen million barrels per day. According to the Energy Information Agency (EIA) report, commercial crude inventories fell again by almost four million barrels (3.9 MMbbls) despite an increase in imports of more than two million barrels (2.0 MMbbls) and without significant changes in refinery utilization percentage.
The rig count figure did show a change in direction, incorporating seven incremental units, according to the Baker Hughes report. But this is not a change with respect to the trend in terms of oil since all the incremental rigs contracted are drilling for natural gas in preparation for increased demand from liquefaction plants. The same report indicates an increase of 37 units outside the US compared to the previous month.
Ecuador
Ecuador's oil production is affected. Less than 100,000 barrels per day of crude are being produced, and the Coca River basin landslide continues, threatening the integrity of the only two oil pipelines that allow oil exports from the eastern basin. According to former state company executives, a relocation plan for the final section of the pipelines has existed since 2021. Still, its execution has been postponed due to the high costs of that project.
GEOPOLITICS
Syria: New Focus in Middle East Conflict
Syria is beginning to become another geopolitical focus in the Middle East. The sudden fall of Bashar al-Assad's regime, although surprising in its speed, was not so unexpected. It is considered a collateral event to the weakening of Iran and its proxies in the region and Russia's military exhaustion from the invasion of Ukraine, both countries being great allies of Assad's regime. The new Syrian government, a coalition of guerrillas united only by anti-Assad sentiment, has managed to control the country except for skirmishes with remnant militias of the fallen regime.
Israel and other Western countries viewed the change in Syria favorably, and the lifting of USA’s economic sanctions fueled talk of a potential Abraham Accord with Syria. After Assad's regime fell on December 8, 2024, Israel invaded Syria to eliminate military installations left by the fallen regime and its Hezbollah allies in the southern region. During its invasion, Israel took control of the UN Disengagement Observer Force buffer zone. Israel's official position in the Syrian civil war has been, until now, one of strict but interested neutrality.
The Druze Question
Syria has a complex ethno-religious distribution. In the country's south, the Druze population is concentrated, mostly residing in the As-Suwayda province. The Druze are an ethno-religious group that differs from Muslims and in Syria were sometimes in favor of and then against Assad's regime. The Druze are not limited to Syria; it is estimated that there are more than one million Druze concentrated mainly in the mountainous regions of Lebanon, Syria, Israel, and Jordan. In Israel, they have official recognition and are integrated into society. The religious leader of the Druze is Hikmat al Hijri, born in Venezuela.
The conflict in Syria has escalated following the start of Israeli bombings against Syrian territory. This development occurs after several months of tensions in the south of the country between the Druze minority and forces aligned with the government established in Damascus. Recently, the confrontations have led to air strikes and the use of tanks and heavy weaponry by Israel against government installations, alleging the protection of the Druze population.
The disagreement between the Druze and current authorities stems from the fact that the former support a federal structure for Syria, while the central government seeks to consolidate authority in Damascus; the Kurds in the north maintain a similar position, also rejecting centralization. Currently, there is a ceasefire agreement between Syria and Israel, facilitated by US mediation, although the situation remains in a state of tense calm.
Ukraine and Russia
Regarding the situation in Ukraine, President Trump has said he is disappointed with Vladimir Putin for not getting the Russian president to change his position regarding a ceasefire, but that he has not closed the chapter. When asked if he trusted the Russian leader in a BBC interview, Trump responded: "I don't trust almost anyone." The fact is that his approach to the conflict seems to be changing. The US president announced plans to send weapons to Ukraine and warned that he would impose severe tariffs on Russia if there were no ceasefire agreement within 50 days. Trump also backed NATO and affirmed his support for the organization's common defense principle. This, if firm, represents an essential change from his position over the last six months.
In this same vein, the European Union (EU) agreed, this Friday the 18th, on a new sanctions package against Russia for the invasion of Ukraine—number 18—which includes a reduction in the maximum price of Russian oil that can be exported without transporters being sanctioned, official sources reported. Additionally, sanctions were increased against "ghost ships" transporting Russian crude. The measure limits Russia's oil revenues while maintaining global market supply stability. This measure reflects the EU's intention to strengthen its economic influence in response to Russia's actions in Ukraine. The sanctions also seek to intensify pressure on Russian financial and energy sectors.
China
To the surprise of many analysts, but in a reassuring signal for oil markets, China's economy showed improved GDP figures in the first half of 2025, with year-over-year growth of 5.3%. According to official data, it exceeded expectations despite challenges such as US tariffs and the decline of the real estate market. China's GDP reached $9.24 trillion in the first half of 2025. The growth was attributed to increased production and domestic demand due to stable employment and household income increases. Retail sales increased 5.9% year-over-year in March, driven by government incentives. Deflation and youth unemployment remain concerns.
Despite these results, conjectures and interpretations of Communist Party political events continue to fuel the debate about the certainty of Xi Jinping's permanence over time.
PRICE DYNAMICS
Oil prices have been volatile during the last week, with a slight downward trend. Factors such as geopolitical tensions, economic uncertainty, OPEC+ decisions, production interruptions in Iraq and Ecuador, and inventory movements have influenced market perception in different directions, contributing to an uncertain environment for the short term.
At market close on Friday, July 18, the Brent and WTI benchmark crudes were trading at $69.29/bbl and $67.355/bbl, respectively. Both benchmark crudes lost 1.5% compared to the previous week.
VENEZUELA
Prisoner Exchange, But No Policy Changes
On Friday, July 18, an unprecedented exchange of hostages and prisoners was completed between the governments of Venezuela, the US, and El Salvador, with the intervention of President Nayib Bukele and, according to Nicolás Maduro, former Spanish President Rodríguez Zapatero.
Components of the exchange:
- Liberation of Venezuelans imprisoned in El Salvador: 252 Venezuelan migrants who had been deported from the US in March of this year and confined in El Salvador's Center for Terrorism Confinement (CECOT) were repatriated to Venezuela. Some of them had been indicted in the US for allegedly being part of the "Tren de Aragua" criminal gang. Maduro's regime called this repatriation a rescue.
- Liberation of US citizens and Venezuelan political prisoners: In exchange for the deportees' liberation, Nicolás Maduro's regime freed 10 US citizens detained in Venezuela, considered by the US as "hostages." The agreement also included the liberation of 80 Venezuelan political prisoners, although as of this article's closure (July 19), only 48 releases with precautionary measures have been verified.
- Context: This exchange resulted from months of negotiations, with two previous frustrated attempts. The agreement was reached after President Bukele's intervention, who had already proposed a similar exchange but was dismissed by Nicolás Maduro. The Trump government and Secretary of State Rubio consider the exchange a diplomatic success, while Maduro presented it as a victory against imperialism. It's interesting to note that the oil issue was left out of this negotiation, for now.
Analysis of the Exchange
In any event, analysts conclude that the exchange's corollary is that direct contacts and negotiations exist between Caracas and Washington and that possibly the known elements of the exchange do not necessarily close the episode; additional elements could emerge later. The absence, at least publicly, of Richard Grenell was noteworthy, as he only mentions it on his social media as a Trump victory.
This exchange has filled the news in all media. But beyond the natural happiness of those involved, it reveals that the illegal imprisonment of Venezuelans is a tactic not only of internal repression but also of obtaining bargaining chips vis-à-vis the international community. In any case, this exchange does not affect the country's ongoing crisis.
Political and Economic Situation
The political sphere is suffering from lethargy in all senses, including people's interest in voting in next week's municipal elections. Nicolás Maduro has had to offer rewards to popular sectors to incentivize greater presence at voting stations.
Economically, the country is transitioning through a dead end. The policy of forcing public spending reduction and allocating limited oil foreign exchange to importing basic necessities pressures upward the exchange markets, different from the official one, actively sliding the Bolívar's value; the Central Bank of Venezuela's (BCV) official rate fluctuates around 120 Bs/$, pressuring downward Venezuelan purchasing power.
So the economy drifts toward recession due to lack of foreign exchange and official economic policies, while inflation continues upward. The regime's objective, possibly unattainable, is to reduce the economy to the size that meager foreign exchange can finance, a process that will be difficult to control. The process, especially for private investment, is becoming a "every man for himself."
OIL OPERATIONS
According to OPEC secondary sources, Venezuelan production between April and June fell eighteen thousand barrels per day (18 thousand bpd), a slight decline in line with what was forecast since OFAC license expirations became known. The absolute production value reported by OPEC differs from our figures, probably due to secondary sources' inability to account for field diluent and condensate handling that should not be included in the cartel's published numbers.
Crude Production
Crude production during the last week averaged eight hundred forty-six thousand barrels per day (846 thousand bpd), distributed geographically as follows:
Area | Thousand bpd |
West | 211 |
East | 120 |
Orinoco Belt | 515 |
TOTAL | 846 |
Refining
National refineries processed 210 thousand bpd of crude and intermediate products, with a yield in gasoline terms of 69 thousand bpd and diesel of 72 thousand bpd.
Upgraders
The PetroPiar (former Chevron) upgrader in José, in the country's east, is operating, and the resulting Hamaca Blend is used as dilution to blend Merey 16 and as refinery feed. The PetroCedeño upgrader continues to obtain intermediate products used as refinery feed. The PetroRoraima (PetroZuata) and PetroMonagas upgraders, also in José, are not operational.
Petrochemical Sector
In the petrochemical sector, methanol plants are operating at an average of 85%, limited by availability, pressure, and natural gas quality from the system. Similarly, Fertinitro maintains one ammonia and urea train operating, and the second is awaiting natural gas supply. Super-Octanos continues out of service. All these plants are in José, in eastern Venezuela.
Exports
July exports align with those of the previous month; at mid-month, they point to an exported crude volume of 540 thousand bpd, entirely destined for China. The weighted price of exported crudes is $34.56/BBL.
[1] International Analyst [2] Nonresident Fellow, Baker Institute
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