M. Juan Szabo [1] y Luis A. Pacheco [2]
Published Originally in Spanish in LA GRAN ALDEA
THE CALM AFTER THE STORM
In a region that has historically been the catalyst for more than one oil crisis, the market looked at a new one that, for the moment, seems to have taken a step back. Both Israel and Iran have avoided damaging the region's oil facilities, at least for now. The much-analyzed threat of a closure of the Strait of Hormuz, which would be an event that would shake the markets, does not seem to be on the table today, as it does not favor either party. On one hand, Iran needs to preserve its oil exports to avoid further deteriorating its economy, already hit by economic sanctions. On the other hand, the U.S. and Israel are trying to prevent a major accident that would break the oil supply chain, which would be reflected in a price escalation. This would affect the unstable world economy and destabilize Trump's fundamental policy of keeping energy prices low as protection against inflation and paving the way to reduce the service of American debt.
A short-duration escalation
The U.S. attack on nuclear facilities in Iran raised alarm signals in the market. However, that perception of risk was diluted when Iran's retaliation materialized as a modest attack on an American base in Qatar, which was previously announced. The 14 missiles launched were seen more as a symbolic response, and the parties were not seeking to damage the vital oil infrastructures of the region. In this way, geopolitical risk evaporated with the same speed that it had emerged, and oil prices fell to the levels before the start of the attacks on Iran's nuclear facilities by Israel.
Market focus shift
The oil market then turned to expectations of lower oil demand growth due to the global economic slowdown and the announcement of increased supply by OPEC+. However, we believe that both the predictions of lower demand and the announcements of greater supply by OPEC+ lack the certainty that the market has assigned to them.
FUNDAMENTALS
Demand and supply indicators
Demand and supply figures give indications of growing demand. The increase in oil purchases suggests greater demand, as is the case in Japan, China, and the U.S., and so does the reduction of inventories. On the supply side, the production opening announced by OPEC+ is falling short, and U.S. oil production is on a plateau, pointing to a potential deficit. Despite these signals, the market returned to the same price levels as before the Israeli bombing, considering that the strength of the fundamentals is ephemeral, or perhaps as an over-correction.
U.S. production
Indeed, U.S. production is stable at just over 13 million barrels per day (13 MMbpd), with indications of decline due to low replacement effort. According to Baker Hughes' weekly report, drilling activity was reduced by seven units, five onshore and two offshore. According to our estimates, the number of crews performing hydraulic fracturing has remained relatively constant due to the greater use of "refracturing," an operation used to extend the useful life (final recovery) of shale oil wells.
Crude inventories
Similarly, the Energy Information Agency (EIA) in its weekly report highlighted a reduction of 5.8 million barrels in commercial crude inventories in the U.S., despite having imported 3.1 million more barrels of crude than the previous week. This is the second consecutive material reduction in as many weeks and seems to indicate a trend, especially if we consider that during this period, there has been a delay in the scheduled replenishment of the Strategic Reserve (SPR) of around 7 million barrels. The current inventory level is lower than the lower limit of the 5-year range. On the other hand, gasoline inventories also decreased by 2.1 million barrels, despite the increase in refinery runs.
OPEC+ production
Unofficial sources revealed that OPEC+ would be about to agree on another increase of 411,000 barrels per day of production for August; with that increase, the total increase announced this year would reach 1.8 million barrels per day. However, the cartel has not yet materialized the announced production volumes because some members compensate for previous overproduction, and others need more time to materialize the opening. The reality points to the fact that the production capacity, theoretically closed, is not as available as announced. On the contrary, those barrels require time and investment to restore them to their original state. We estimate that by the end of the year, the incremental production from OPEC+ countries will not even reach half of the announced volumes.
GEOPOLITICS
Reduced risk in the Middle East
The probability that warlike events, particularly in the Middle East, will derail the normal functioning of the hydrocarbon industry has been considerably reduced. Just a few days ago, the bombings and reprisals between Israel and Iran, added to the U.S. intervention in the conflict, brought the risk premium to high levels, reflected in oil prices that pointed to $80/bbl in terms of Brent crude. However, the ceasefire between Israel and Iran, achieved through the mediation of the U.S. and Qatar, and the absence of subsequent reprisals, have essentially diluted the geopolitical risk premiums and a return of prices to pre-12-day war levels.
Weakening of Iranian power
The relative calm in the region and the apparent ease with which a ceasefire was achieved have their justification in some regional developments shaping the current balance of powers in the Middle East. Iran's economic and military power has diminished considerably, this being the reason for its poor response to Israeli and American attacks. However, its internal propaganda tries to convince its population that they defended themselves successfully and forced the enemy's surrender with their missile superiority.
The reality seems to be that the elimination of the leaders of the Revolutionary Guard and a portion of the scientists who managed Iran's nuclear program, as well as the near elimination of its anti-aircraft defense and the significant damage to its nuclear and missile infrastructure, undermined, at least for now, its regional power.
Weakness of Iranian allies
Iran's regional power had already been weakened with the overthrow of Bashar al-Assad in Syria, its great regional partner, and the considerable weakening of its terrorist tentacles distributed throughout the region. The most notable case is that of the terrorist group Hamas. Without commanders, deprived of much of its tunnel network and uncertain of the support of its main ally and supplier, the group is struggling to survive in Gaza against rebel local clans and relentless Israeli military pressure.
Hezbollah, in Lebanon, has also been decimated, and in the case of the Houthis in Yemen, the situation is not so clear. The confrontations with Saudi Arabia, the repeated attacks by the U.S., the United Kingdom, and Israel, and the reduced support from Iran have severely reduced their ability to keep ships from navigating the Red Sea.
Opportunity for the Abraham Accords
This regional situation seems conducive to the U.S. insisting on progressing with the Abraham Accords, especially between Saudi Arabia and Israel. After all, the Israeli initiative against Iran has enormously benefited the Arab countries of the Persian Gulf.
Russia-Ukraine conflict
On the Russia and Ukraine front, violence shows no signs of abating, as international peace efforts led by the U.S. have not produced any progress to date. Two recent rounds of talks between the Russian and Ukrainian delegations in Istanbul were brief and did not lead to progress toward reaching an agreement.
Long-range drone attacks have been a hallmark of that war. The race by both sides to develop increasingly sophisticated and deadly drones has turned the conflict into a testing ground for new weapons. Russian forces have been slowly advancing at some points on the ground battle front line. However, their incremental advances have been costly in terms of troop casualties and loss of military equipment. The new attacks follow comments by President Putin on Friday that Moscow is ready for a new round of direct peace talks in Istanbul. Meanwhile, Ukrainian President Volodymyr Zelensky was attending the NATO summit in The Hague, seeking to secure the support of that bloc.
Russian economic crisis
The real headache for the president of the Russian Federation is the deterioration of the economy. Although Putin tried to give a positive message in his intervention at the 2025 St. Petersburg International Economic Forum, in the corridors, the conversations centered on an imminent banking crisis due to high inflation; attempts to control with very high interest rates have triggered delinquency. The bulky budgets to finance the war, and the limited income from hydrocarbon sales due to sanctions, make up a toxic recipe for the Russian economy.
U.S.-China relations
According to Treasury Secretary Scott Bessent, the U.S. and China appear to have settled their differences regarding shipments of rare earth minerals and magnets to the U.S.. This resolves a dispute that stalled a trade agreement reached in May. China had suspended exports of a wide range of critical minerals and magnets, disrupting supply chains central to automakers, aerospace manufacturers, semiconductor companies, and military contractors worldwide. Capital markets received the announcement well, which extended their gains and almost completely recovered the drop experienced at the beginning of the year.
U.S. fiscal policy
Additionally, in the U.S., the approval process for the budget law proposed by Trump and approved by the House of Representatives in May faces challenges to be approved in the Senate at the speed that the president would like. The Senate approved the opening of the debate on the bill, which contemplates about 4 trillion dollars in tax cuts, on Saturday after convincing some Republicans who questioned the initiative. With 51 votes in favor and 49 against, the Senate endorsed opening the formal debate on the plan, which causes controversy because it expands the tax cuts from Trump's first term (2017-2021), increases spending on defense and immigration control, and reduces assistance programs such as Medicaid and food stamps.
PRICE DYNAMICS
Focus on fundamentals
After diluting the geopolitical risk premium in oil prices, the oil market focused on the global growth rate and its effect on oil demand, adding the production increase announcements made by OPEC+. At least for now, it does not factor in the resilience of demand and delays in the materialization of supply, both from countries in the OPEC sphere and non-OPEC countries.
Upcoming key events
Now that the Middle East is relatively quiet, some key events are coming that will be reflected in prices: the OPEC+ meeting on July 6, the deadline for Trump's tariff war, and the approval of the budget law in the U.S. Senate. Surveys conducted by Reuters of options traders foresee a 60% probability that a barrel of Brent will average between 60 and 70 USD in the next three months.
Weekly close
Prices closed the week with a substantial loss of almost 12% compared to the previous week. Thus, at market close on Friday, June 27, the Brent and WTI benchmark crudes were trading at $67.77/bbl and $65.52/bbl, respectively.
VENEZUELA
Economic myopia
The Venezuelan regime is focused on implementing its economic model to face U.S. economic sanctions while promoting municipal elections to finish taking over political spaces at all levels. However, the municipalities will not significantly impact the effort to rescue the economy.
Structural political crisis
The situation in Venezuela continues to be marked by a profound structural crisis, both politically and economically. Politically, the Maduro administration faces accelerated decline. As a result of the handling of elections in general, particularly the presidential elections of July 2024, the regime has lost national and international legitimacy and is dealing with internal fractures and diplomatic isolation. The political opposition, particularly that led by Edmundo González and María Corina Machado, has strong popular support, estimated at more than 70%. Still, its performance continues to be hampered by the policy of repression and fear that has gone so far as to prohibit speaking or publishing information that is not to the regime's liking.
International pressure and maximum pressure policy
The U.S. and other international actors have intensified their pressure, calling the regime a regional threat, and have questioned the validity of the presidential and regional elections. The Trump administration has applied the maximum pressure policy and cut the umbilical cord that fed the country with foreign currency from oil sales to the American market. The incremental oil activity, licensed by the Biden administration, had helped the economy show signs of recovery during 2024, but from early 2025, a new contraction is forecast.
Current economic situation
The regime has reduced public spending to survive this contracting economy, impacting consumption. Even so, foreign currency income has had to be supplemented with monetary financing from the BCV. The exchange rate continues to weaken: at the week's economic activities close, the official rate exceeded Bs 107/$, while the "unnameable," according to international portals, is around Bs 146 Bs./$. Annualized inflation, estimated by independent analysts, is in the order of 200%.
Ineffectiveness of anti-sanctions measures
The regime's anti-sanctions measures have been the equivalent of band-aids. The productive participation contracts (CPP) have not shown significant results, and oil exports, concentrated towards China, generate income at a discount relative to the market price, and with collection problems.
Hopes for negotiation
In any event, the Maduro administration has not lost hope of achieving political results that help this critical situation, through negotiations with the White House. As is logical, they think that developments in the Middle East provide an opportunity, and they have undoubtedly noted what appears to be an internal struggle between MAGA forces and their opponents within the Trump administration.
The mention that China could continue buying Iranian crude, that contacts between the U.S. and Iran were reestablished after the ceasefire, and Secretary of State Marco Rubio's hesitant position on imposing incremental sanctions on Russia are positive signals for the Venezuelan regime, which maintains the flow of deported emigrants in the hope of achieving more openness in the maximum-pressure siege.
OIL OPERATIONS
Results under maximum pressure
At the close of the first month under the sanctions of the Trump administration's maximum pressure policy, oil results align with most of the predictions aired when the end of the OFAC licensing era was known. The short duration of elevated prices due to the war ended the hope of obtaining higher oil revenues.
Crude production
Crude production during the last week averaged 843 MBPD, relatively unchanged, distributed geographically as follows, in MBPD:
Area | Mbpd |
West | 211 |
East | 120 |
Orinoco Belt | 512 |
TOTAL | 843 |
National refining
The shutdown of the Cardón refinery (electrical blackout) and the PetroPiar upgrader (furnace fire) have affected June's operational results. National refineries processed 166 MBPD of crude and intermediate products, with a yield in terms of gasoline of 57 MBPD and diesel of 63 MBPD.
Petrochemical sector
In the petrochemical sector, the methanol plants are operating. At Fertinitro, an ammonia and urea train is operating, and Super-Octanos is out of service; however, the pressure of the gas supplied to the complex was reduced, partially affecting the plants' results.
Exports
Exports in June appear to point to about 570 MBPD. Nine crude tankers were dispatched in the first 26 days, and at least three more are expected to dock and load before the end of the month.
CITGO
Auction process
In Houston, it was announced that Black Lion Citgo Group, a consortium led by private equity firm Black Lion Capital Advisors, had submitted an offer of $8 billion (in cash), as part of the auction of shares of PDVSA Holding (CITGO's parent company) ordered by the Delaware court. This is an additional step in this process that began more than five years ago due to debts incurred during the Chávez and Maduro administrations. Legal experts still forecast a long and winding road before the auction materializes, despite this latest offer at least reflecting the asset’s potential value a little better.
Favorable decision in New York
In New York, a court decided in favor of PDVSA and PDV Holdings in an alter ego case sued by a vulture fund. Although this decision does not influence what has already been judged in Delaware, it is a favorable precedent for future cases.
[1]: International Analyst [2]: Nonresident Fellow, Baker Institute
No comments:
Post a Comment