M. Juan Szabo [1] y Luis A. Pacheco [2]
Published Originally in Spanish in LA GRAN ALDEA
Renewed geopolitical tensions in the Middle East and the Russia-Ukraine conflict pushed the oil market upward. At the same time, signals of increased supply from OPEC+ member countries and mixed economic data in the U.S. balanced this dynamic. Crude oil prices closed the week with significant gains, the strongest in three months in terms of Brent crude, but with daily fluctuations reflecting the perception that there is an excess supply and lukewarm demand—concerns that have not materialized to date.
Key Factors in the Global Energy Market
The key factors that affected the behavior of the global energy market were:
- Decline in crude oil inventories in the U.S.
- Interruptions in Russian refined product exports
- Resumption of Kurdish exports from Iraq to Turkey
- Increased drilling activity in the U.S.
- The inability of OPEC+ countries to open the announced production volumes
GEOPOLITICS
Russia, the world's third-largest oil producer, extended its gasoline export ban until the end of 2025 while introducing partial restrictions on diesel exports, catalyzing the week's price rally. Russian Deputy Prime Minister Alexander Novak announced these measures as a consequence of repeated Ukrainian attacks on refineries and fuel storage infrastructure. The attacks have reduced Russia's refining capacity and generated fuel shortages, leading to fuel rationing.
These restrictions eliminate approximately five hundred thousand barrels per day (500 Mbpd) from global markets, creating an immediate supply deficit that other companies are trying to cover. The impact extends further, as on Friday, Ukrainian drones targeted the Tingovatovo pumping station (1,000 km from the Ukrainian border) on the Almetyevsk pipeline, a vital supply route to Russian refineries in the western part of the country. Pumping was interrupted, and Moscow is now considering cutting crude production due to the damage caused and problems with its exports in the international market due to sanctions.
In a new extension of the conflict, Russia continued its tactic of testing or challenging Europe and NATO with incursions into the airspace of at least six European Union (EU) member countries. NATO has activated its air forces, within its protocol, forcing Russian aircraft and drones to leave the territory.
However, NATO Secretary General Mark Rutte endorsed on Thursday the comments made during the week by President Trump that NATO member countries should shoot down Russian aircraft and drones if they enter their airspace, if such a measure were necessary. Russian authorities, who seem to seek escalation in their stance to divert their population's attention from the internal crisis, commented that this would be a declaration of war. The statements from the Alaska summit, just a few weeks ago, have already become another mockery by President Putin of the West.
Another event that affected the oil market, this time downward, was the resumption of exports from the Kurdish region of Iraq via Turkey. Indeed, Iraq reactivated crude shipments from the Kurdish region through the Kirkuk-Ceyhan pipeline after more than two years of suspension. Initially, one hundred eighty thousand barrels per day (180 Mbpd) are being sent, possibly increasing to 230 MBPD. This provides an additional supply to the market that, although modest, could help reduce the lag in the crude opening announced by OPEC+ countries.
Middle East Situation
In the Middle East, the violence and displacement in Gaza, although intense, continue without affecting the oil market, beyond reminding us of the importance of energy security. Israel executed a massive attack on Houthi bases in Yemen in response to several drones launched from that country against Israel, one of which caused considerable damage in Eilat, southern Israel.
During the UN General Assembly celebration in New York, President Trump met with various world leaders to seek an early end to the war in Gaza and free Israeli hostages. Over the weekend, a 21-point plan that would be acceptable to the parties was revealed. There is talk of releasing all hostages, a staged withdrawal of Israeli forces, and an international government formed by Arab countries. The details have not been verified, nor is it known if they have been shared with Hamas.
UN General Assembly
The UN General Assembly was a kind of political theater, with system failures perceived as sabotage, dramatic and accusatory speeches, and an audience using their absence as an instrument of protest. Even as in the case of President Petro of Colombia, using the opportunity to challenge and insult American institutions right on the street. At the end of the event, what remains clear is that the institution is ineffective and bureaucratic: a stage where much is said, little is heard, and less is achieved.
FUNDAMENTALS
The physical fundamentals of the oil market continue to weaken the narrative promoted by some analysts that declining demand and growing supply would keep the next 12 months with oil surpluses and, consequently, downward prices.
Indeed, the traditional indicator of the demand/supply balance, the level of commercial crude inventories, published weekly by the Energy Information Agency (EIA), indicates that inventories fell by six hundred thousand barrels. At first glance, this decline is a low number, but in the context that crude imports increased during the week by seven million barrels (7 MMbbls), it is evidence of healthy demand. Incidentally, gasoline inventories also fell by more than one million barrels in the same period.
On the other hand, Baker Hughes reported an unusual increase in drilling rig activity (+7), an activity that has been declining for most of the year. The increase focuses on conventional oil basins, which suggests that efforts are concentrated in areas of lower decline to achieve limited production increases.
OPEC+ Production Gap
The most relevant element in determining the movement of world supply in the foreseeable future is the gap between the actual production of OPEC+ countries and the announced production increase. Let's remember that the International Energy Agency (IEA) has predicted, based mainly on OPEC+ announcements, a scenario with growing global inventories in the second half of 2025, with an average oversupply of more than two million barrels per day (2 MMbpd).
Global Demand
India's oil demand in September 2025 maintains an upward trend and is projected to surpass China as the primary driver of global oil consumption growth; India is rapidly approaching an import of five million barrels per day (5.0 MMbpd). It is important to note that this oil import increases, eventually, in response to high liquefied natural gas (LNG) prices and to take advantage of Russian oil imports despite U.S. sanctions.
Meanwhile, China's crude imports during the rest of 2025 seem destined to remain around 11.2 MMbpd, slightly below the nearly two-year high reached in June. However, a possible increase in purchases for strategic oil reserves could raise the amount, and purchases that also benefit from Russia’s need to sell its sanctioned crude.
In summary, the net effect of all elements that moved oil market fundamentals in one direction or another is positive and provides a floor for the price increases caused by the impact of regional wars.
PRICE BEHAVIOR
A week of solid growth in oil prices. The increase in geopolitical risk, mainly due to the direction of Russia's activities, neutralized the nervousness of overproduction announcements. Physical oil market indicators also provided the foundation for these price increases.
Thus, at market close on Friday, September 26, the benchmark crudes, Brent and WTI, were trading at $70.13/bbl and $65.72/bbl, respectively, 5% higher than the previous week's close.
VENEZUELA
Geological and Currency Earthquake
To the concern about the political and economic situation this week, an unpleasant surprise from nature was added. The insistence of high-ranking civilian and military officials that a "gringo" invasion of the territory is imminent has the population on edge. To this is added a deteriorated economy that punishes the most humble and has found in the "gringo threat" a convenient excuse. Fortunately, the supposed invasion looks unlikely to occur as the regime is peddling.
As if this were not enough, a sequence of three earthquakes and hundreds of aftershocks shook the western part of the country, creating widespread panic, mainly where the epicenter was located, on the eastern coast of Lake Maracaibo. Regional seismic movements are generally caused by the displacement of the Caribbean tectonic plates and the South American plate and their relationship with the Boconó and Oca-Ancón faults.
Conspiracy Theories vs. Real Concerns
Generalized nervousness is a breeding ground for conspiracy theories of all kinds. In the case of earthquakes, a TikTok video and news spread by the X platform circulated on social media, suggesting that there is a cause-and-effect relationship between the presence and potential activity of the self-elevating drill brought by the Chinese company Concord to Lake Maracaibo and the earthquakes that occurred this week—an irresponsible rumor, without any technical foundation: worthy of the pseudo-experts who inhabit the networks.
However, a situation that is indeed of concern, and that has not been much mentioned, is the integrity of the containment wall on the eastern coast of Lake Maracaibo. The dike was built decades ago, using Dutch technology, by Shell, to protect the coastal towns that suffered subsidence due to oil extraction and ended up below the lake level over time. We are unaware of the maintenance PDVSA gives to the dike. Still, if it is similar to the rest of the facilities, it could represent a high-risk situation in case of earthquakes like those that occurred during the week. PDVSA should assure the area's population that it is fulfilling its responsibility.
Currency Crisis
The country is indeed going through a real cataclysm: the currency crisis. Economic authorities have been unable to control the runaway devaluation of the monetary sign, despite dedicating increasingly larger amounts of foreign currency to auctions via cryptocurrencies, designed to narrow the gap between official exchange rates and the parallel market. At the end of the week, the gap stood at 68% and the official rate was approaching 175 Bs./$. As foreign currencies offered at the official rate are reduced in favor of auctions at higher exchange rates, it gives the impression that the official rate could converge with the parallel one.
The accelerated devaluation of the bolívar and the issuance of inorganic money to finance public spending catapult inflation that no one dares to publish, but is increasing again. Inflation plus dollarization reduces the purchasing power of salaries and wages in bolívars, making the basic basket inaccessible to most of the population, deepening the humanitarian crisis. As long as foreign currency income is limited and insufficient, every initiative only alleviates the economic problem. temporarily
Diplomatic Relations
In his letter a few days ago to Donald Trump, Nicolás Maduro described the communication channel with Richard Grenell, the White House special envoy, as "impeccable" and reaffirmed his willingness to maintain bilateral dialogue. Analysts read this as a desperate attempt to re-involve the American emissary in a negotiation process and sidestep Marco Rubio's hawks, before it's too late. In any case, Maduro's letter was dismissed by the White House spokesperson.
Likewise, the Venezuelan defense minister, General Padrino López, announced an operation to clean Sucre State of drugs. The campaign is designed to try to counter accusations of narcoterrorism, without realizing that they contradict the regime's previous statements denying the presence of drug trafficking on national territory.
OIL OPERATIONS
National Production
Crude production during the last week averaged eight hundred fifty-seven thousand barrels per day (857 Mbpd), distributed geographically as follows:
• West 222 Chevron: 109
• East 120
• Orinoco Belt 515 Chevron: 121
• TOTAL 857 Chevron 230
Chevron License Impact
Chevron's activity shows that its new OFAC license is a restricted authorization compared to the original version (LG41). When LG41 was granted in 2022, the production of the PetroBoscan joint venture was artificially limited to about half of its real potential. Hence, reopening that potential did not require much effort, inflating the real effects of the license in the industry's reactivation, for purely political purposes.
On the contrary, the new license took effect with production in the four joint ventures (JV), which were very close to their potential and without drilling activity, limiting the incremental economic impact that some expected. In any case, the major limitation is a consequence of the restrictions imposed by the new license. As the end of September approaches, it is clear that the volumes exported by Chevron to the U.S. are less than half of the previous volume. The royalty and tax payments, paid in kind, are less attractive than under the LG 41 and do not impact the economy as they did at the beginning of the year.
Refineries and Petrochemicals
National refineries processed 223 Mbpd of crude and intermediate products, with a yield in terms of gasoline of 73 Mbpd and diesel of 76 Mbpd.
In the petrochemical sector, one of the Ammonia-Urea trains at Fertinitro in the José petrochemical complex was shut down due to operational problems; the plant will supposedly come back online next week.
Exports
In the first 25 days of the month, around 620 Mbpd of crude were exported, with two destinations: China, 510 Mbpd, and the U.S., 110 Mbpd.
A shipment scheduled for Cuba was replaced by a Russian crude shipment currently unloading in Cuba.
We estimate the weighted price of exported crude at $32.8/BBL.
[1]: International Analyst
[2]: Nonresident Fellow Baker Institute
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