M. Juan Szabo [1] y Luis A. Pacheco [2]
Published Originally in Spanish in LA GRAN ALDEA
During the first part of the week, bullish news kept oil prices in a narrow band. The upward forces are the understandable result of the recent interest rate cut by the Federal Reserve (FED), the uncertainty surrounding Russian exports due to continued attacks on their infrastructure, possible additional sanctions by the European Union (EU), and the decline in commercial hydrocarbon inventories in the United States.
However, on Friday, for reasons that are difficult to identify with certainty, the specter of oversupply reappeared as a result of OPEC+ announcements and supply increases in other countries, generating the sentiment that a supply excess will inevitably materialize next year. Neither argument is robust, but the market again values them as accurate, reducing prices by more than 1.2%, below the previous week's close.
Ironically, this sense of imminent overproduction coincides with a "position flip" by the International Energy Agency (IEA), which now suggests that hydrocarbon investments must increase considerably to avoid a medium-term energy crisis. The agency probably seeks to avoid being co-responsible if another crisis materializes, as in 2021. Major oil companies understand this well: they are increasing their global exploratory activity, especially in deep waters.
GEOPOLITICS
During the week, geopolitics continued influencing risk perception in international trade and the global oil market. International tensions and the evolution of major economies added uncertainty about the stability of the supply-demand equation. Conflicts in Europe, the Middle East, and other regions have marked the unstable tone of the market.
USA - United Kingdom Relations
Donald Trump always captures media attention, and this week was no exception. His visit to the United Kingdom unfolded amid a ceremonial pomp rarely seen, even in the stodgy British monarchy. The United Kingdom, after Brexit, is a nation that continues to search for a purpose. Its economic prospects are uncertain, its global influence has diminished, and it faces enormous internal political pressure.
The British ruling class, including sectors of government, the financial sector, and the media, confronts an environment marked by common themes with their American cousins: immigration, climate change, demographic change, Ukraine, and the rise of a populist right, among others. The current Labour Party administration, which is nominally left-wing, finds itself having to make political contortions to avoid missing out on the benefits of being in the US's gravitational field (read: tariffs) while not alienating its voters.
This visit is their public and formal recognition that their future security and relevance are now more tied to the agenda and goodwill of the United States, and less with their allies in Europe, with whom they must maintain a complex balance. By offering a royal welcome, the United Kingdom indicates to Washington and the world that they are choosing a side. However, like everything in politics, it's a choice that will be nuanced by its interests: investments, employment, and internal opposition, among others.
Tensions with Russia
On the other hand, President Trump says he is disappointed with Putin and his actions in Ukraine, and claims to be willing to impose sanctions on Russia, provided that the EU stops buying Russian LNG, natural gas, and oil. This forces EU leaders to try to reach a consensus to replace energy consumption from Russia, which is not easy. The EU's energy chief, Dan Jorgensen, is confident that "very soon" an agreement will be reached to end Russian energy entry to the bloc in 2027, a date that does not satisfy American expectations.
Jorgensen negotiated with Energy Secretary Chris Wright in the context of talks to end the war in Ukraine. They discussed strategies to gradually eliminate Russian energy imports, particularly LNG, to reduce European dependence and support Ukraine. Brussels is weighing its nineteenth sanctions package against Moscow, with plans to advance the Russian LNG ban, as Europe still depends on Russia for almost a fifth of its gas.
Despite Russian signals to attract investments, ExxonMobil does not plan to return to the Russian oil industry, its CEO Darren Woods told the Financial Times on Thursday, noting that what is being carried out are conversations with Russia to recover the value of assets expropriated for $4.6 billion.
In any case, Russia's participation in the oil market is limited by the partial degradation of its refining system and export infrastructure due to Ukrainian attacks and financial limitations to increase its production. Economic sanctions have forced Russia to implement a complex, costly, and risky transportation system, using a ghost fleet increasingly in Western authorities' crosshairs. An immediate result has been the reduction in India's purchases of Russian crude.
Continuing with Russian recklessness to provoke and test NATO's capacity, three Russian MiG-31 fighter jets entered Estonia's airspace over the Gulf of Finland "without permission and remained there for a total of 12 minutes," the Estonian government reported. Italy, Finland, and Sweden deployed fighter jets as part of NATO's mission to reinforce its eastern flank.
Multiple Fronts for Israel
In the Middle East, Israel has been active on three fronts. Advancing the takeover of Gaza City, keeping Hezbollah at bay to prevent its recovery, and defending itself from drones launched by the Houthis from Yemen. The fourth front, unrelated to military activity, is diplomacy, having to face criticism and threats of sanctions from countries that were once considered friends. In the field of international opinion, Israel does not have the same success it has in confrontations against terrorist groups, including Iran.
Its military strategy is leaving Israel diplomatically isolated, only counting on the U.S. as a secure ally, and with the relative silence of Sunni Arab countries that feel Israel is executing a job that could fall to them. Several countries, including the United Kingdom, Canada, and Portugal, announced they will vote in favor of recognizing the Palestinian state. Israel considers these decisions as a prize to Hamas and other terrorist groups.
FUNDAMENTALS
Given the uncertainty in demand growth and potential increases in oil supply, inventory movement is the best indicator of the real balance of market physical fundamentals. Unfortunately, estimating the real volumes of global inventories is almost impossible, as relevant information contains opaque elements. China's oil inventories are not published, Russia's are not credible, and other important countries like Japan and Korea publish very late. The rest must be estimated by empirical methods that often amplify base errors. This opacity in data can lead to abrupt price movements and suboptimal decisions by producers and consumers, increasing market volatility. The industry and market have resorted to using information published by the Energy Information Administration of the Department of Energy (EIA) as an "extrapolable" indicator because it deals with the first economy and world power.
United States Inventories
This week, for example, the EIA report shows a drop of more than nine million barrels (9 MMbbls) in commercial crude inventories with little change in strategic reserves (SPR) and a decline of 2.3 million barrels in gasoline. In part, the drop corresponds to lower crude imports (-3 MMbbls), but the figure confirms a trend that keeps inventories at the lower end of the 5-year range and shows a reduction of 40 MMbbls in recent months. This indicates that U.S. oil demand is still strong.
Completing the North American picture, the United States and Canada are maintaining high crude production, at 13.2 and 5.8 million barrels per day, respectively. This reflects a perception of relatively low prices and oil uncertainties.
Drilling activity in both countries continues to decline slightly, compensated for in certain areas to meet local energy requirements. Similarly, fracking crew activity (an indicator in "shale" basins) is reducing compared to last year. Under current market conditions, we do not see incremental supply contributions in the United States or Canada for the year.
OPEC+ and Its Challenges
Perhaps the most significant potential contribution to supply and uncertainty corresponds to OPEC+ plans and works; the expanded cartel is trying to dismantle production closures accumulated since the pandemic era (2020). This process began in April of this year and has had its problems. The 2.2 MMbpd that should be upping global supply has run into the fact that a good part of the nominally closed production capacity has eroded, either due to the energy decline of reservoirs or the mechanical decline of wells.
Only some OPEC+ countries have increased their production (1.35 MMbpd, in the latest count); other members have remained below their quotas, reducing the strategy's net effect. In fact, OPEC+ has had problems determining each member's real production potential. To solve this problem, OPEC+ ministers have requested the OPEC secretariat to develop a mechanism to evaluate each member's maximum sustainable production capacity. Based on the methodology OPEC finally establishes, OPEC+ will set baselines: production levels from which each member makes cuts or increases. OPEC+ ministers will make a conclusive decision when they meet at the end of this year.
These complexities suggest that the production increase announced by the group might not be entirely a direct price war, but rather a strategy influenced by factors such as increased sanctions against other oil producers and possible consultations with Washington to manage global supply and prices.
Latin America
Production increase projections in Latin America have also not been met, although they are developing normally. In Brazil, production increased in July to 3.8 MMbpd, but retreated to 3.7 MMbpd in August; it is expected to reach the peak of 3.8 MMbpd by year-end. Meanwhile, in Guyana, production from the Yellowtail discovery began using the FPSO Guyana One. The process of gradually increasing output from this unit is in full development. In August, production increased from 650 to 725 MBPD, and it is expected that by year-end, Guyana's output will reach a new record of 845 MBPD.
Argentina, another country that achieved production increases, reached a production record of 811 MBPD in July. For August, preliminary numbers indicate maintenance of July's level. For the year-end, the objective has been set at 830 MBPD, with more than 60% coming from unconventional exploitation of Vaca Muerta shale.
Investment Perspectives According to the IEA
In an unusual but not unexpected turn of events, the IEA indicated that the world will need to spend $540 billion per year to satisfy current demand and avoid an oil crisis in 2050. Its forecast is part of a report that analyzed more than 15,000 fields and the speed at which their production is declining: "production from current fields is declining at an alarming rate," added the IEA, requiring immediate action from the industry. Its executive director, Fatih Birol, has been emphatic in affirming that the sector must "run much faster just to stay in place," a concept he had opposed with the same vehemence before this report. However, ambiguously, the IEA reiterates in the same report that the world would not need to invest in new oil and gas projects if fuel demand fell in line with the 1.5°C warming limit for 2050 (its Net Zero scenario).
Impact of Interest Rates
Finally, the recent interest rate reduction by the Federal Reserve (FED) has had important—though mixed—effects on the oil market. On one hand, lower rates tend to stimulate consumption and investment, which could increase energy demand in the medium term, especially if additional cuts materialize during 2025. There was no perceptible price uptick, as the oil market had already discounted the 25 basis point reduction.
PRICE BEHAVIOR
The expected interest rate cut by the U.S. Federal Reserve, the fall in inventory levels in the United States, the risks and limitations of Russian exports, and the partial non-compliance with production openings announced by OPEC+ have not been sufficient to shore up oil prices.
Thus, at market close on Friday, September 20, the benchmark crudes, Brent and WTI, were trading at $66.68/bbl and $62.68/bbl, respectively, similar to the previous week's close.
VENEZUELA
Supplicant Diplomacy
The situation between Venezuela and the United States in September 2025 has reached an unprecedented level of tension, marked by accusations of narco-terrorism, military deployments, and contradictory diplomatic maneuvers.
Military officials, diplomats, and analysts affirm that one of the main objectives of the military force deployed by the White House in the Caribbean is to increase pressure to dismantle drug cartels, particularly the Cartel of the Suns, which directly affects Nicolás Maduro. Senior officials of the Trump administration qualify Nicolás Maduro as an illegitimate leader and accuse him of directing the actions of criminal gangs and drug cartels.
"We are not going to allow a cartel, operating or posing as government, to operate in our own hemisphere," declared Secretary of State Marco Rubio on Fox News this week, adding that Maduro had been charged in a U.S. court and was "a fugitive from American justice." Maduro responded to the American military deployment with his own military deployment, which they called "Sovereign Caribbean 200," mobilizing more than 2,500 military personnel, warships, and militias in and around La Orchila island in the Caribbean.
Also, from Argentina, White House special envoy Richard Grenell reappeared in the media, suggesting it was never too late to negotiate with Maduro's regime; an opinion clearly contrasting with those expressed by the rest of the Trump administration. Grenell's intervention could reflect different perspectives within the U.S. government, or Maduro may use it as a "messenger pigeon" to stop the imminent military threat. In any case, three vessels, supposedly transporting drugs, were eliminated with lethal force in the Caribbean Sea, without any legal procedure being pursued. In tune with Grenell's comments, Reuters reported that Maduro had sent a letter to Trump, requesting to resolve differences through direct negotiation and denying any involvement in drug trafficking. During the weekend, the Caracas regime published the letter.
Economy and Cryptocurrencies
On the economic side, the novel use of the USDT cryptocurrency, despite having shown some success, was replaced by DAI. DAI is a cryptocurrency defined as a decentralized "stablecoin" linked to the value of the U.S. dollar. It is designed to maintain parity close to $1 and is probably a tactic to move operations as far as possible from potential intervention by the U.S. Treasury Department. The fact is that it has not achieved the penetration that USDT had.
The new scheme’s objective of mitigating the gap between different exchange markets has not been successful, and the gap has again approached 60%. The official exchange rate was allowed to slide until it reached 165 Bs./$ at the week's close.
Foreign currency income was slightly higher in September, probably due to Chevron's activity. For now, Chevron's process of producing and taking Venezuelan crude to the United States corresponds to a fraction, approximately one-third, of the volumes handled under LG 41. Therefore, foreign currency income and debt deduction expectations will be much lower than in 2023 and 2024
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In summary, the Maduro administration's procedure wavers between challenging the United States' military superiority, trying to dismantle the narco-terrorism narrative, and at the same time trying to negotiate and wave the olive branch.
Oil Operations
Crude production during the last week averaged eight hundred fifty-six thousand barrels (856 MBPD), geographically distributed as follows:
• West 222 Chevron: 109 • East 120 • Orinoco Belt 514 Chevron: 120 • TOTAL 856 Chevron 229
National refineries maintained their processing level at 230 MBPD of crude and intermediate products, with a yield in terms of gasoline of 76 MBPD and diesel of 78 MBPD. In the petrochemical sector, continuity in operations was also achieved.
Crude exports so far this month point to a volume of about seventeen million barrels (17 MMbbls). In the first half of the month, 90 MBPD were sent to the Gulf Coast to American refineries and about 520 MBPD to the Far East.
We estimate that the weighted price of exported crude is in the order of $31.7/BBL.
It was revealed that Alejandro Betancourt was detained in the United Kingdom at the request of the Central Instruction Court No. 5 of Spain's National Court. Some of Betancourt's companies appear as partners in various joint ventures, such as PetroZamora and PetroCedeño, although we do not expect an impact on the operations.
Citgo
Southern District of New York Judge Katherine Polk Failla published her decision on Friday regarding the validity of the collateral for PDVSA 2020 bonds. Polk ruled that the bonds, which had expired five years ago and expired five years ago and claimed as invalid by representatives of Venezuela, were issued correctly according to her interpretation of Venezuelan law. Venezuela's representatives have declared they will appeal this new ruling. In any case, the possible execution of the pledge (50.1% of Citgo Holding shares) depends on modifying an OFAC license (General License 5S).
In light of the ruling in N.Y., the hearing being conducted separately by federal appeals court judge Leonard Stark in Delaware was temporarily suspended but then resumed without a decision on who should be declared the winner in the auction of the shares of Citgo Petroleum's parent company. Judge Stark must now consider Judge Polk Failla's decision and other elements to adjudicate the long-protracted auction, a decision that will surely also be appealed.
² Nonresident Fellow Baker Institute
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