M. Juan Szabo [1] y Luis A. Pacheco [2]
Published Originally in Spanish in LA GRAN ALDEA
The oil market presents divided opinions: on one hand, some consider that an oversupply could occur, and on the other, those who maintain that current fundamentals indicate the need for greater investments to maintain market balance. Additionally, the potential growth of renewable energies introduces factors that may justify revisions in global oil demand projections.
During the week, reports from some investment banks, joining the IEA's position, pushed markets downward. However, inventory data, production increases well below expectations, stubborn demand growth, and geopolitical factors maintained the price floor.
Oil prices headed toward a second consecutive week with minimal gains, as hopes for a negotiated solution to the Russia-Ukraine conflict faded, and trade tensions between the U.S. and India remain unresolved. Next week, on September 7, OPEC+ meets to evaluate current market conditions and its production cuts.
To date, OPEC+ announcements have been a double-edged sword. On one hand, they worry the market about the new volume that would theoretically enter the market. But on the other hand, the limited materialization of those barrels undermines the credibility of the announcements.
FUNDAMENTALS
Bank of America joined Goldman Sachs in predicting a substantial increase in oil production for the remainder of this year and 2026. Its market research department expresses this in its weekly report, resonating with the perspectives of the International Energy Agency (IEA).
The BearsThe pessimistic narrative orchestrated by the IEA’reports and some banks goes as follows: Crude production has increased in OPEC and its allies, known as OPEC+; as the group has accelerated production increases seeking to regain market share, supply prospects increase, which pressures global oil prices downward; this supply increase adds to material production growth in countries outside the OPEC+ sphere, creating an avalanche of production that would coincide with mediocre demand growth, as the peak gasoline consumption season in the U.S. is coming to an end. To this are added new changes in global tariffs that erode economic growth prospects.
Alternative vision
In this edition, we wanted to share an alternative vision:
Demand side
On the demand side, the numbers indicate that demand has maintained its growth rate of just over one hundred thousand barrels per day (100 Mbpd) per month, which would tend to be maintained once two events settle positively. On one hand, the Federal Reserve's (FED) probable decision to begin reducing interest rates in September, which would give a boost to economic activity in the U.S., and, on the other, the end of uncertainty related to the complex process of agreeing on tariffs between the U.S. and its trading partners. The most recent experience indicates that the matter will tend to converge to agreements that would not materially affect economic flows; however, ongoing negotiations with China could modify this premise.
Supply side
On the supply side, we have adjusted the projection of production increase in each country to the latest official announcements made by competent authorities or companies responsible for implementing the growth of OPEC+, the U.S., Canada, Brazil, Guyana, and Argentina, offset by production decline in the rest of the world. This data is reflected in the graph below, where increases by country can be observed for the next 11 months and cumulative incremental production in the same period.
It is important to note that, in the case of the U.S., we are respecting the increases forecast by the Energy Information Agency (EIA) of around 300 Mbpd. However, today, the materialization of that increase looks unlikely.
The second graph compares net supply increases with the demand increase we estimate during this same period. It can be observed that, except for what remains of 2025, due to the coincidence of OPEC+ increase with increases in Brazil and Guyana, incremental supply growth will exceed the increase in demand. But from January 2026 and the rest of the year, according to our calculations, demand increases will be superior to supply increases.
Country-by-country analysis
Examining expected production increases in the countries mentioned above allows us to identify some particularities.
OPEC+
OPEC+ announced that 2.2 MMbpd will flow to the market by the end of September from all voluntarily shut production. However, in the first days of September, Saudi Arabia, the UAE, and Iraq appear to struggle to implement an opening of about 1.0 MMbpd. The effort to achieve what was announced looks even more titanic in light of low drilling activity.
United States
For its part, hydrocarbon activity shows stagnation in the U.S. The main indicators, active rigs and the number of DUC wells (drilled and uncompleted wells), indicate a slowdown in activity. On the other hand, commercial crude and gasoline inventories, according to the EIA, show declines of 2.4 and 1.3 million barrels, respectively. This picture casts doubt on the possibility of increasing production until the end of 2026.
Argentina
In Argentina, hydrocarbon production continues to reach historic figures. In July, production reached 811.2 Mbpd, a value not achieved since 1999; while in natural gas, production reached 2000 levels, 5.7 million cubic feet per day (MMcfd).
Guyana
The steepest production growth slope, since 2019, corresponds to Guyana. This small country, through ultra-deep water oil activities carried out by a powerful consortium led by ExxonMobil, has already put into operation four large floating production units (FPSO), which will allow it to reach production of more than nine hundred thousand barrels per day (900 Mbpd) by the end of the first quarter of 2026.
While these countries, including Canada, are growing in production, the rest of the world, afflicted by a lack of investment and poor exploratory results, is declining at around 2% annually.
GEOPOLITICS
In geopolitical scenarios, the energy market remains alert for a possible military escalation in any existing conflicts or the deepening of economic sanctions, which can disrupt global supply.
Russia-Ukraine Conflict
Some of these escalations are already happening. Ukrainian attacks on Russian refineries have eliminated more than 15% of Russia's refining capacity, equivalent to more than one million barrels per day (1 MMbpd), and have caused fuel shortages in some Russian regions and Crimea. A similar effect, but on Russian oil exports, has been caused by damage from Ukrainian drones to the Unecha pumping station, limiting the loading capacity of the Baltic port of Ust-Luga to three hundred fifty thousand barrels per day (350 Mbpd), that is, half of the usual production capacity. Both events are affecting Moscow's ability to finance its war machine.
Proposals for direct negotiations between Presidents Zelensky, Putin, and Trump have fallen on deaf ears in the Kremlin. President Putin's intransigence is giving President Trump reasons to harden his stance on the Ukraine conflict. The escalation of Russian attacks on population centers, which even reached a European Union headquarters, enraged European leaders, who now want to impose their own secondary sanctions on buyers of Russian products.
British Prime Minister Keir Starmer accused Russian President Vladimir Putin of "sabotaging hopes for peace." At the same time, German Chancellor Friedrich Merz said that "Russia showed its true face" with the latest attacks. Italian Prime Minister Giorgia Meloni noted that Russia's attack demonstrates that it is not interested in negotiating an end to the war in Ukraine. Finally, according to the Pentagon, the U.S. State Department has approved the sale of air-launched cruise missiles and related equipment valued at an estimated $825 million.
Sanctions on India
On the other hand, economic sanctions imposed by the U.S. on India for purchasing Russian crude went into effect on Wednesday and have caused unrest in India, not only because of the commercial significance of the sanctions, but also because they consider it discriminatory for not applying similar sanctions to China.
Middle East
In the Middle East, while negotiations are apparently underway for the release of all hostages held in Gaza and the end of the almost two-year war, Israel recovered the body of another murdered hostage. Israeli Finance Minister Bezalel Smotrich has published an infographic showing how Hamas is intended to be defeated by the end of 2025.
The minister described the necessary steps to isolate Hamas and overthrow the military capabilities of the remaining terrorist organizations. In four words: "we isolate Hamas from its weapons, its money, its people, and its territory. That's how we will win." Hamas has harshly criticized these statements. In the bombing of the Gaza Strip, on Friday night, Abu Obeidah was eliminated, the well-known highest-ranking leader in Gaza and one of the ISIS leaders, Muhammad Abd al-Aziz Abu Zubaida.
In another typical Mossad and IDF operation event, an airstrike on Yemen was reported, called "Operation A Little Luck," which was launched after precise intelligence information about the leading group of Houthi rebels. Indeed, in the attack, Houthi Prime Minister Ahmed Al-Rahawi was killed, along with other members of the terrorist regime's leadership.
PRICE DYNAMICS
The market has not seen the materialization of announced crude supply increases, leading those most concerned about overproduction to think that supply and demand may be in a more precarious balance. Similarly, demand erosion has not materialized for now; there seems to be a tendency toward the "status quo."
Oil prices rose at the beginning of the week due to Ukrainian attacks on Russian oil export terminals and news of reductions in American inventories. However, the mere mention of conversations among Ukraine's European allies about a possible ceasefire kept price increases in check. On Friday, prices gave up part of the week's gains in response to noise from India regarding imposed tariffs.
Thus, at the close of markets on Friday, August 29, the benchmark crudes, Brent and WTI, were trading at $67.48/bbl and $64.01/bbl, respectively, almost identical to the previous week's close.
VENEZUELA
The circle closes
In today's Venezuela, moments are being lived that could be described as a mixture of cold war, hot war, and economic war as a consequence of pressure imposed by the U.S. This is a more critical situation for the White House than it appears at first glance. The outcome of this stand-off is crucial for Venezuela's future, and it could affect Trump's immigration policies, regional relations, and even the results of midterm elections in the U.S.; ultimately, it would impact crude prices and the hemisphere's long-term energy security.
Main geopolitical elements
The main elements that define this geopolitical moment are:
- Amid this tension, the American oil company, Chevron, has resumed its operations in Venezuela thanks to a special license granted by the U.S. Venezuelan crude continues flowing toward the Gulf Coast of America, which may or may not be paradoxical depending on the outcome.
- The U.S. government is clearly reviewing the status of the Maduro administration. It does not recognize him as head of state. It accuses the highest-ranking leaders of the ruling party of leading the Cartel of the Suns, an organization linked to drug trafficking and now classified as a terrorist group by the Treasury Department. This cartel is attributed to links with FARC, ELN, the Aragua Train, and the Sinaloa Cartel. By virtue of this new classification, the U.S. has offered a $50 million reward for information leading to Maduro's capture.
- Trump has ordered the most significant military deployment in the Caribbean in decades, with seven warships, an attack submarine, and more than 4,500 troops and marines. Although officially it is an anti-drug operation, several advisors and observers interpret that it has nuances that include the pursuit of cartel members.
- Venezuela has responded with naval patrols, drone displays, and the deployment of 15,000 soldiers on the border with Colombia. Diplomatic tension has escalated, with Caracas denouncing "imperial harassment" to the UN and activating its Bolivarian Militia. Meanwhile, the Venezuelan population lives between hope for change for the better and fear of military intervention.
Economic situation
The economy continues out of control. Income from oil activities resulting from Chevron's return still does not provide enough resources to shore up an economy in free fall. Neither is the level of monetization resulting under the terms of the new license known, that is, the amount of foreign currency entering the exchange system. Authorities have accelerated the sliding of the bolívar's official exchange rate, reaching close to 150 Bs./$. Dollar injection was limited, reserving part of the available dollars to offer them through controlled auctions at prices above the official rate. It was the only mechanism to stop the exchange market gap. For now, the gap remains between 40% and 50%. No one dares to publish projections of the inflation this exchange crisis generates.
Oil operations
A jack-up drilling rig is being towed in Lake Maracaibo, presumably for the Chinese company Concord. It is the first international marine drilling rig to enter operations in Venezuelan waters in many years. One or two cantilever-type drilling barges are also being rebuilt, supposedly for dual workover/recompletion (Wo/Rc) and drilling service.
Crude production during the last week averaged eight hundred fifty-five thousand barrels per day (855 Mbpd), geographically distributed as follows:
Area Mbpd (Chevron)
• West 219 (108)
• East 120
• Orinoco Belt 516 (118)
• TOTAL 855 (226)
Chevron's production has remained level since the company returned to operating in the Joint Ventures (JV).
National refineries processed 230 MBPD of crude and intermediate products, with a yield in terms of gasoline of 78 MBPD and diesel of 81 MBPD.
There have been no changes in the petrochemical sector, with active plants running at capacities limited by natural gas availability.
Crude exports in August are averaging about 552 MBPD. Thirteen tankers have been dispatched, 7 to the Far East and 6 to the U.S., for a total of 15.8 MMBBLS. The weighted price of exported crude is at $32.3/BBL.
CITGO
According to Reuters, in the auction organized by the Federal Court of Delaware, United States, for the shares of CITGO's parent company, Venezuela's creditors, Gold Reserve, Siemens Energy, Andean Consortium, and Global Securities presented motions to annul the offer made by Amber Energy. In early August, the "Special Master," Robert Pincus, had postulated that the offer made by Amber Energy, a hedge fund Elliott Investment Management subsidiary, was the "strongest" received so far.
In parallel, Canadian mining company Gold Reserve reported that its subsidiary, Dalinar Energy, presented an improved offer this Thursday. It should be remembered that Judge Stark had given Dalinar Energy additional time to prepare a counteroffer. Gold Reserve stated that its subsidiary "has substantially increased the proposed purchase price, has secured additional financial support, and has increased the certainty of its offer in non-economic ways."
Judge Leonard Stark is expected to make a final decision in September on the winning offer for the shares of the Venezuelan company, which other actors will likely challenge.
References:
¹ International Analyst
² Nonresident Fellow Baker Institute
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