Tuesday, October 07, 2025

OPEC+ MAINTAINS PRESSURE ON THE MARKET

El Taladro Azul

M. Juan Szabo [1] y Luis A. Pacheco [2]

Published  Originally in Spanish in  LA GRAN ALDEA 


OPEC+ countries, which have been claiming for some time that the market needs more barrels to meet rising demand, continue with their objective of recovering their market share. To this end, they have been executing a strategy based on the gradual opening of production capacity that they nominally have closed, managing supply levels under their control (43% of global production).

However, the cartel's announcements, almost monthly since April of this year, have faced the unavoidable reality that most member countries of the cartel do not have the capacity to meet the production targets, either for technical reasons or for lack of investment. At the behest of Saudi Arabia and the United Arab Emirates (UAE), the organization persists in proposing to increase its barrels in the market, even if they are "empty" barrels, at least in the announced timeframe. This tenacious and, at first glance, poorly understood approach has undermined market confidence in future demand/supply balances.

The sequence of events from the last quarter of 2024 to date—weakness in the Chinese economy, trade conflicts and tariff wars introduced by the Trump administration, followed by OPEC+ announcements, in addition to the volatility caused by geopolitical factors—has resulted in a collapse in oil prices of more than 16% over the last 12 months.

In this sense, the announcement of a new OPEC+ meeting to discuss an additional production opening, apparently much larger than October's, contributed during the week to enhance the negativism that the oil market has recently assumed.

As if all that were not enough, the U.S. Congress, in an already repeated political tug-of-war, failed to reach an agreement to approve government budgets and caused the closure of part of the federal administration without a compromise solution.

In what promises to be one of the most relevant news stories in recent times, the peace plan for Gaza proposed by President Trump and welcomed by almost the entire international community, including Arab countries, and accepted by Israel, was finally, but subject to certain conditions, accepted by Hamas. However, this is only a first step in negotiations that have historically been unsuccessful.

GEOPOLITICS

Peace in Gaza?

The Israeli military offensive to take Gaza City and end the Hamas group's stronghold, coupled with multiple pro-Palestinian demonstrations in major European capitals and elsewhere, made this conflict the center of international attention during the week. The positioning of different governments, for or against the recognition of a Palestinian state, added a degree of complexity to this recurring conflict.

Among the demonstrations against the Israeli military offensive, the media highlighted the fleet of about 50 vessels navigating the Mediterranean with the declared purpose of bringing humanitarian supplies to the population of Gaza. As expected, the flotilla was intercepted by the Israeli navy, and the organizers scored propaganda points.

This took a back seat when Hamas supposedly accepted, subject to negotiations, the 20-point peace plan proposed by the White House. The peace plan includes the return of hostages (a necessary condition for Israel), the withdrawal of Israeli military forces from the Gaza Strip, and the end of Hamas's political control in the strip (a necessary condition for Palestinians and for most of the Arab world).

The peace plan, which was discussed with leaders from at least eight Arab and Muslim countries in the context of the UN General Assembly, seems to have the broad support of the international community, including Israel. After a new ultimatum from President Trump, the Hamas group responded positively before the deadline expired. Hamas accepted at least the return of living hostages and the bodies of those who have been murdered, in exchange for the release of several terrorists imprisoned in Israel, and agreed to sit down to negotiate the rest of the plan in Cairo. Surely the negotiations will be oriented toward the complete disarmament of Hamas and the gradual withdrawal of Israel from the Gaza Strip. President Trump has also assured that he will not allow Israel to annex the West Bank territory.

If a lasting agreement is achieved, it would have significant repercussions on regional and even global geopolitics, due to the oil nature of the region and the presence of Iran's terrorist tentacles, which would likely be reduced or become non-operational, at least for a time. Achieving a lasting agreement will not be easy, as radicals on both sides are not interested in compromise.

On September 30, Yemen's Houthi rebels announced that they were ending a truce agreed upon in May and would resume targeting U.S.-linked assets. Analysts warn that threatened vessels have already avoided the region for months by sailing around Africa's Cape of Good Hope, reducing the likelihood of an immediate escalation.

Russia-Ukraine Conflict

Regarding the Russian conflict with Ukraine, the divergences between Presidents Trump and Putin are becoming increasingly visible, and both the U.S. and most European countries are converging toward a stronger and more united position against the increasingly bold actions of the Kremlin. On the ground, Russian troops have managed to occupy portions of territory in eastern Ukraine, but at an extremely high cost in terms of losses of soldiers and equipment. On the other hand, Ukraine's continued air offensive has taken a quarter of Russia's refining capacity out of operation, weakening the ability to finance the continuation of this long war.

Indeed, sanctions are affecting Russia's ability to counteract the decline of its old Siberian oil fields and the development of new ones in the Arctic. Fuel shortages in the domestic market and declining production are affecting Russian exports. Low oil prices and the discounts Russia has to give to place its sanctioned crude aggravate the revenue loss. This situation, in turn, contributes to the gap between OPEC+'s announced and actual production.

Trump's distancing from Putin has been so noticeable that, on his Truth Social platform, the U.S. president assured that Ukraine, with the support of Europe and NATO, could recover "the original borders from when this war began," due to the economic pressures facing the Kremlin. Meanwhile, the Kremlin has intensified air incursions into European countries, trying to create confusion and test reactions.

U.S. Domestic Politics

Regarding U.S. domestic politics, Trump has his plate full with the budget confrontation in Congress between Republicans and Democrats, which has led to the paralysis of the federal administration. Since Wednesday, the government has only been performing necessary and unavoidable functions. This is the first shutdown or "paralysis" since the longest in history, which lasted 35 days almost seven years ago, and will stop the work of multiple departments and federal agencies, affecting hundreds of thousands of government employees and millions of citizens. Prolonging this situation could delay bilateral negotiations, permit allocation, and other bureaucratic procedures. The disagreement centers on the issue of financing public health services, which both parties are using as an ideological battleground.

FUNDAMENTALS

Demand, supply, and inventory fundamentals do not justify the behavior of the oil market. According to our calculations, global crude demand continues above one hundred three million barrels per day (103 MMbpd) and supply, at around 102 MMbpd. Global inventories confirm this imbalance.

It should be noted that it is complex to estimate global inventories promptly, due to the limited availability of information in various regions and the difficulty of accounting for both sanctioned crude and tankers and floating inventories. This challenge is aggravated by the extensive voyages and waiting times these tankers undertake to evade imposed restrictions. However, the weekly information published by the Energy Information Agency (EIA) of U.S. commercial inventories shows that, despite increasing this week by about 1.8 MMbbls, the figures remain below the average of the last five years. In general, evidence confirms that global inventories have declined modestly, if we exclude floating inventories, for the reasons already described.

U.S. Production

According to the EIA, the U.S. maintains constant production around 13.5 MMbpd, with drilling activity, according to Baker Hughes, and fracking crews that do not point toward short-term growth. Shale basin operators' efforts focus on reducing operating costs to maintain the competitiveness of unconventional crude and gas, even at low prices. The most relevant of these efforts is observed in the Permian Basin, where the capacity to reuse and optimize injection water and formation water produced by wells is being increased.

OPEC+ Production

OPEC+, which has made much fuss announcing the not-so-gradual dismantling of volumes closed by its members since 2020, now deliberates whether to open more production in November, despite having run into production capacity limitations in most countries, except Saudi Arabia and the UAE, which have problems of their own. To a lesser extent, countries like Russia, primarily, and Mexico have produced less as the months have passed. Russia produces around 8.6 MMbpd, with seaborne exports of 3.6 MMbpd and about 300 thousand barrels per day via pipelines. Russia has achieved these export levels because India, China, and Turkey remain willing to buy Russian crude despite President Trump's sanctions pressures.

Last Sunday, at the last minute, white smoke emerged from the OPEC+ conclave. Rationality prevailed, and they announced an additional increase in production starting in November of 137 Mbpd, equal to the modest October adjustment and less than a third of the volume advocated by Saudi Arabia. The group reaffirmed its position of a "stable global economy and current healthy market fundamentals, as reflected in low oil inventories." We'll see if and when these barrels materialize.

On the supply side, in addition to the uncertain increases announced by OPEC+, only Guyana is significantly increasing its production this year. Brazil and Canada are not on the list of increases this year.

Global Demand

On the demand side, difficult-to-confirm information indicates that China has maintained its crude imports due to its policy of increasing its strategic inventories. However, this may change once it achieves the targets. At the same time, India continues to grow in demand based on the growth of its economy.

Price Behavior

During the last week, prices experienced a significant drop, recording the largest weekly loss in more than three months—a terrible week for crude producers and sellers, who saw prices plummet by almost 8%. Buyers had a happy week, seeing a substantial reduction in their raw material costs, and there were opportunities for speculators and participants in financial products derived from the global oil market.

Thus, at the close of markets on Friday, October 3, the benchmark crudes, Brent and WTI, were trading at $64.53/bbl and $60.88/bbl, respectively.

VENEZUELA

Playing Stratego

In what appear to be speculations or simply trial balloons, various banking sources and international political analysts think there are increasing signs of a possible U.S. military action on Venezuelan territory, in principle targeting alleged drug collection centers and drug manufacturing laboratories. As it is logical to assume that political-military strategies are not shared with the press or close associates, this is nothing more than a sign of these times, where information increases entropy, unless the strategy is to spread that rumor. Dissent factors within the regime could catalyze this toward a situation that supports a political transition option where they survive. At the same time, that scenario would favor a restructuring of the enormous state debt, clearly a situation that would favor creditors, who are many, and the financial world.

In any case, Nicolás Maduro and his Defense Minister, General Padrino, warned U.S. Secretary of State Marco Rubio and Secretary of War Pete Hegseth that initiating an armed confrontation would be a big mistake. This is a choreography in which the regime uses the improbable external threat as a distracting element and an excuse for its poor government.

Meanwhile, a fifth vessel, supposedly with four occupants and an unknown amount of drugs, was neutralized with a U.S. drone attack. In Washington, the Trump administration informed Congress that the U.S. was at war with drug cartels, thought to be a way to circumvent parliamentary authorizations that would otherwise be necessary.

Nicolás Maduro, in response, called on the armed forces to finalize the details of defense mechanisms. Events that have had no significance beyond the "bluff" to try to see what the other players have and seek reasons to deepen the repression of opposition forces.

Another event was the advancement of Christmas decreed by Nicolás Maduro, which began with fireworks launched from El Helicoide, where numerous political prisoners are confined. The opposition showed displeasure at what they consider an act of cynicism and political provocation: making a center of repression the symbol of the festivities.

Economic Situation

The deteriorated economy and public finances are affecting the country's population. Although oil exports were the highest in several months, to date, that increase has not been reflected in the flow of foreign currency. The drop in oil prices and the delay in cryptocurrency payment processing are the main causes. In any case, the economic problems continued to focus on the exchange rate situation and its natural consequences on inflation, wages and salaries, purchasing power, and the level of dollarization.

The Central Bank of Venezuela (BCV) limited the injection of foreign currency into the official market to dedicate a greater volume to cryptocurrency auctions, intending to close the gap with parallel markets. The official rate was allowed to slide to exceed 185 Bs./$. The gap with the parallel market was reduced to around 58%. The inflation figure continues to be unpublished, but undoubtedly, it keeps on its ascending trend.

The scheme of royalty payments in kind and taxes via barter with diluent and products, associated with the most recent license authorizing Chevron's activities in Venezuela, leaves little maneuverability in the exchange mechanism of banks traditionally used by Chevron. The amounts of foreign currency transferred to national banks are limited to the amount required to pay for operating expenses (OPEX) and investments (CAPEX) in bolívares.

Oil Operations

The much-mentioned Chinese offshore platform, Alula, has not yet begun its activity of drilling new directional wells from a central foundation. However, several existing wells have been intervened on, changing the artificial lift method from "gas lift” (historically the method most common in Lake Maracaibo) to the use of electric submersible pumps. On one hand, this is due to the lack of compressed gas in the area, and on the other, it is a more effective method in modern operations. This activity is part of the announced reactivation of 100 wells. The high volumes of fluid these new pumps can lift (oil, water, and natural gas) pose new challenges related to water management and sand control.

Crude Production

Crude production during the last week averaged eight hundred sixty-two thousand barrels per day (862 Mbpd), distributed geographically as follows:

• West                         224      Chevron: 109

• East                           119

• Orinoco Belt             519      Chevron: 122

• TOTAL                    862      Chevron: 231

Part of the western production was used to generate the "Blend 17" segregation, essentially with specifications almost identical to those of the "BCF 17” segregation, the Venezuelan benchmark for many years since the concessionary era and during much of PDVSA's activities.

Refining

National refineries processed 233 Mbpd of crude and intermediate products, yielding 75 Mbpd for gasoline and 80 Mbpd for diesel.

Petrochemical Sector

In the petrochemical sector, one of the ammonia-urea trains at Fertinitro, in the Jose petrochemical complex, was stopped due to operational problems, and the other train was stopped due to a lack of natural gas, leaving the complex without ammonia and urea production. Likewise, one of the methanol production trains at Metor was also paralyzed due to a lack of natural gas, and the other train at Metor and Supermetanol was operating at 90% capacity. The SuperOctanos plant is also paralyzed. Thus, petrochemicals, a relatively stable source of foreign currency income, temporarily generate little more than half of the usual income.

Exports

September crude exports closed with an increase of almost 200 Mbpd compared to August volumes. The increase was concentrated in China, where apparently Venezuelan crude filled the deficit left by the reduction in Russian crude imports, mainly to Chinese private refineries. Two shipments to Cuba that we had not previously identified were also recorded.

Crude exports during September averaged 786 Mbpd. The destinations were:

·       China: 613 Mbpd

·       U.S.: 120 Mbpd

·       Cuba: 53 Mbpd

The exported segregations were:

·       Merey 16: 620 Mbpd

·       Boscán: 103 Mbpd

·       Hamaca: 40 Mbpd

·       Blend 17: 23 Mbpd

We estimate that the weighted price of exported crudes is $31.3/bbl.

[1]: International Analyst

[2]: Nonresident Fellow Baker Institute

 

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OPEC+ MAINTAINS PRESSURE ON THE MARKET

El Taladro Azul M. Juan Szabo [1] y Luis A. Pacheco [2] Published  Originally in Spanish in    LA GRAN ALDEA   OPEC+ countries, which have b...