PEACE PLAN FOR UKRAINE AND RUSSIA PUSHES OIL PRICES DOWN

El Taladro Azul

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

Published  Originally in Spanish in  LA GRAN ALDEA   

The resumption of Russian port operations in the Black Sea, the entry into force of sanctions against Russian oil companies, and the decline in U.S. commercial crude inventories maintained volatility in the oil market. However, the news that weighed most heavily on prices was the possible resolution to the military conflict between Ukraine and Russia, after it became public that the White House had agreed with the Kremlin on a plan to end the conflict.

Indeed, following the apparent success of President Trump's 30-point plan for Gaza, at least regarding the cessation of hostilities, the market reacted to the announcement of a 28-point proposal to end the war between Russia and Ukraine. The mere fact that Putin appears inclined to accept said proposal considerably reduced the perception of geopolitical risk that had been established in the markets due to the continuous "give and take" of the conflict, which has resulted in Russian advances in eastern Ukraine and significant deterioration of Russian oil infrastructure. Added to this were sanctions that were eroding Russia's oil supply to the market. The new expectation of security in Russian oil supply kept oil prices below those of the previous week.

Meanwhile, refined product markets are experiencing a boom, as middle distillate (gas oil) refining margins reach their highest level in nearly three years, primarily driven by European Union (EU) sanctions on Russian petroleum products and the fact that more than 15% of Russian refining capacity has been affected by Ukrainian attacks.

In Belém, Brazil, COP30 ended with considerable disagreements and some agreements well below the expectations of organizations seeking to accelerate the reduction of fossil fuel use. China's silence and the U.S.'s absence left Europeans bearing the weight of financial commitments. After 30 of these conferences, perhaps it is time to reconsider whether this is still the mechanism for advancing climate change management agreements.

GEOPOLITICS

The strategic, commercial, and technological rivalries between the U.S. and China continue to be the main catalysts of 21st-century geopolitics, influencing the global economy, supply chains, and technological governance. Russia is making efforts to insert itself into that select group, using its nuclear arsenal as a banner and supporting China in its objective to reconfigure the world order and challenge the existing multilateral system. Meanwhile, Europe (including the United Kingdom) debates whether it has a role to play in these scenarios.

Against this backdrop, short-term geopolitics unfolds at the world's tension points: Eastern Europe, the Middle East, and a relatively new tension between Japan and China regarding Taiwan, an immediacy that may or may not extend over time.

Ukraine and Russia

This week, the focus returns to Russia's invasion of Ukraine. Ukrainian President Volodymyr Zelensky faces a confluence of crises that tests his convening power in a country exhausted by nearly four years of devastating confrontation with Russia.

Pressure on Zelensky has intensified as Trump pushes a proposal developed together with Russia that would require significant territorial and military concessions from Ukraine—and, apparently, few from Russia—to end the war. According to Reuters, Kyiv would have to relinquish the entire Donbas region and significantly reduce its army, terms that Ukraine's supporters have long considered, for practical purposes, a surrender. In parallel, Zelensky is trying to contain the internal repercussions of a corruption scandal involving senior officials and other associates.

All this unfolds while Russia makes slow but steady advances in eastern Ukraine and relentlessly bombs power plants, causing severe electricity outages as colder weather sets in. However, it should not be forgotten that, contrary to what the Trump proposal tacitly assumes, Russia also faces economic and military problems.

Zelensky said he has received a 28-point peace plan, drafted jointly by the U.S. and Russia, and that he is willing to work on it immediately. He also expects to speak with U.S. President Donald Trump in the coming days. For now, EU leaders and Zelensky are holding urgent consultations at the G20 summit in Johannesburg, seeking a common position amid the geopolitical earthquake driven by the White House. The U.S. plan for Ukraine breaks into the G-20, notable for the absence of Donald Trump, Vladimir Putin, and Chinese President Xi, although these details do not seem to affect the market's immediate reaction.

Despite the complexity of the negotiations that may or may not occur, the market seems to interpret the process as a light at the end of the tunnel, and oil prices fell sharply on Friday, without assigning much value to the sanctions against Russian oil companies, Rosneft and Lukoil, which were about to enter into force.

Middle East

Regarding the conflict in the Middle East, the UN Security Council is scheduled to vote this Monday on a resolution to take Gaza beyond the fragile truce that entered into force last month, toward a more sustainable peace and reconstruction. Its main features include a Peace Board, trained by Egypt, to administer Gaza for two years. The Board would oversee the disarmament of Hamas and other factions—a key Israeli demand—as well as Gaza's reconstruction, with support from international forces and Palestinian police.

The resolution is based on President Trump's peace plan, presented in September, but already faces opposition from some members of the Israeli government and could suffer a veto from Russia, China, or both, when the vote comes.

FUNDAMENTALS

The dynamics of oil fundamentals did not impress the market much, despite a 3.4 million-barrel drop in U.S. commercial crude inventories, which remain below the range of the last 5 years. Crude production potential generation activities, both in rigs and fracturing crews, show ups and downs but remain at constant average levels, maintaining stability.

At the same time, the most recent U.S. employment report, published on Thursday, dispelled hopes of a Federal Reserve interest rate cut in December. The data showed an unexpected addition of 119,000 jobs for September; the unemployment rate increased to 4.4% and previous months were revised downward. Markets interpreted the data as a weakening of the argument for imminent monetary easing, which, in turn, weakens support for oil demand.

"Given the Fed's recent more aggressive turn and the lack of scheduled official data before the December 10 FOMC meeting, it is understandable that the market thinks the next move will not come until early 2026," ING bank analysts said in a note.

China

On the Chinese side, oil demand appears to have recovered, based on the high refining margins prevailing in the market, to the point that the central government increased crude quotas for private refineries (teapots). The reduction in Russian crude purchases by both China and India is affecting the scheme and volume of Russian exports.

China is importing unusually large quantities of crude oil from Indonesia, a trend that, according to traders, is intended to mask shipments of sanctioned Iranian crude transshipped through Malaysian waters amid increased scrutiny of Malaysian-origin shipments.

Price Dynamics

Over the last week, oil prices continued to decline amid concerns that a global supply surplus will materialize, but above all due to the reaction to the diplomatic rapprochement between the U.S. and Russia regarding the war in Ukraine.

Thus, at the close of markets on Friday, November 21, the market crudes, Brent and WTI, were trading at $62.56/bbl and $58.56/bbl, respectively, a loss of almost 3% from the previous week’s close.

VENEZUELA

Change or Continuity?

Over the weekend, more than six airlines canceled flights to and from Venezuela after the United States Federal Aviation Administration (FAA) warned civil aviation of an "increase in military activity" amid the deployment of U.S. forces in the Caribbean, the Venezuelan airline association told AP.

These unexpected cancellations are the most recent result of the escalation of military tensions between the U.S. and Venezuela, nominally against the "Cartel of the Suns." Washington assures that this cartel, which it designates as drug trafficking, is headed by Nicolás Maduro. This cartel, as announced by U.S. Secretary of State Marco Rubio, will be designated as a foreign terrorist organization on Monday, November 24. Designating organizations as foreign terrorist groups grants U.S. law enforcement and military greater legal powers to attack and dismantle them, hence the warning about airspace.

On the other hand, perhaps as the other jaw of the pincers, President Donald Trump assured this Friday that he will soon speak with Venezuelan leader Nicolás Maduro to tell him "something very specific." So the credible military threat in the Caribbean and its legal justification under U.S. laws, and the supposed pending conversation between Trump and Maduro, seem to presage that something is about to change. The only certainty is that the current situation is unsustainable from any perspective.

In the Caribbean, the tanker 'Seahorse', which was transporting Russian naphtha to Venezuela, was intercepted by the United States Navy. The tanker changed course, not without attempting twice more to reach its destination. Finally, it returned to the Cuban port of Matanzas, where it had been, and from where it set sail again with an unknown destination. This naval skirmish (blockade?) affects the availability of diluent for mixing Merey 16 crude.

On the other hand, the economy continues to be affected by the geopolitical environment of sanctions and, now, by a possible naval blockade. Despite the administration's sacrifices in public spending and an increasingly disproportionate distribution between the foreign currency offered at the official rate and that provided on cryptocurrency platforms at considerably higher levels, the gap stubbornly remained above 40%. At the close of markets, the official exchange rate stood at 243 Bs./$, up 3% from the previous week.

The National Assembly (AN) met again this Thursday, November 20, to authorize a 15-year extension for the oil joint ventures Petroperijá and Boquerón. Both operators promise to produce 91 million barrels of crude between 2026 and 2041, that is, 12 Mbpd through Petroperijá and 4 Mbpd from Boquerón, averages higher than their current production. However, if materialized, they would be relatively modest objectives for what the country needs to achieve.

Oil Operations

The Jose oil and petrochemical complex, on the country's northeastern coast, was the scene this week of a new industrial accident. At the PetroCedeño crude upgrader, the atmospheric distillation tower exploded due to exposure to abnormal pressures, likely caused by inadequate specifications for the processed crude. The explosion caused a fire that caused substantial damage to the facilities, affecting both production and refining. As is customary, PDVSA has not adequately reported on the event.

Due to the crude production shutdown related to the accident, production averaged eight hundred fifty-one thousand barrels per day (851 Mbpd) for the week, geographically distributed as follows:

·       West: 227 (Chevron: 108)

·       East: 117

·       Orinoco Belt: 507 (Chevron: 125)

·       TOTAL: 851 (Chevron: 233)

National refineries processed 231 Mbpd of crude and intermediate products, yielding 80 Mbpd of gasoline and 77 Mbpd of diesel.

The petrochemical sector continues to be affected by limited natural gas availability, with operations at methanol plants (Metor and Supermetanol) and fertilizer plants (Fertinitro) below their design capacity. In contrast, the SuperOctanos plant remains out of service.

November exports are averaging below 610 Mbpd due to delays in loading vessels during the Jose accident and the availability of crude in specification. Destinations for exported crude and products are limited to China, the U.S., and Cuba.

We estimate the weighted price of exported crude at $30.1/bbl.

[1]: International Analyst [2]: Nonresident Fellow Baker Institute

 

OIL PRICES OSCILLATE BETWEEN FORECASTS AND REALITIES

El Taladro Azul

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

Published  Originally in Spanish in  LA GRAN ALDEA  

Judging by the apparent convergence of opinions from many analysts, the oil market is heading toward a scenario of supply surplus; analyses that seem to reinforce each other in a classic example of "Groupthink." Even OPEC's November report, which has consistently argued that there is no such surplus, has been interpreted by some as proof of the supposed supply surplus for 2026. However, it's unclear how anybody can reach this conclusion. In any case, this supposed cohesion of opinions has had a substantial bearish impact on oil prices and the activities surrounding them.

On the other hand, some geopolitical factors have partially offset this trend. We refer to the drone attacks carried out by Ukraine that have put Russia's most important Black Sea terminal out of service, also affecting the CPC (Caspian Pipeline Consortium) terminal that handles Kazakhstan's exports, and to Iran's interception of a product tanker sailing off the coast of the United Arab Emirates (UAE) and hijacked to Iranian waters. Similarly, additional attacks against Russian refineries continue to deteriorate the Russian economy's capacity to serve its domestic markets and generate sufficient exports to finance its budgets, particularly the military budget.

Thus, crude oil prices remained under pressure, as the narrative of supply surplus managed to eclipse the disruptions in Russian supply. Crude recovered from its lows, but concerns about a supply surplus persist, creating very high price volatility.

GEOPOLITICS

The geopolitical variable is once again taking control. Ukraine's strategy of targeting Russian refining, storage, and dispatch facilities, to restrict its revenues from hydrocarbon sales and create chaos in the Russian domestic market, appears to be succeeding. Indeed, on Friday, the Russian port of Novorossiysk, in the Black Sea, temporarily suspended oil exports, about two million barrels per day, following a Ukrainian attack with missiles and drones. The attack could affect Kazakhstan's exports through the CPC system. The refinery in the Saratov region and its storage yard were also severely damaged by Ukrainian attacks.

This week's combined attack was one of the largest against Russian oil export infrastructure in recent months, following the intensification of Ukraine's strategy against Russian refineries, storage centers, and loading terminals. The paralyzing effect of these attacks is compounded by the sanctions imposed by the U.S. and the European Union (EU) on Russian oil and its operating companies.

Another element that could lead to additional conflict in the Middle East is the interception by Iran's Revolutionary Guard (IRGC) of the Marshall Islands-flagged product tanker, M/V Talara, and its transfer to Iranian waters after passing through the Strait of Hormuz; the vessel's operator reported losing contact with the crew. The tanker was sailing off the coast of the United Arab Emirates (UAE) and was carrying a cargo of high-sulfur gas oil from Sharjah, UAE, bound for Singapore.

These events remind us of the fragility of energy systems in regions plagued by armed conflicts and sanctions, which translates into incremental volatility and upward pressure on prices.

Finally, after 43 days of the U.S. federal government shutdown, President Trump signed the budget agreement. The law signed by the president guarantees funding for most federal agencies until midnight on January 30 of next year. Although six Democratic senators decided to vote "across the aisle," which allowed the parliamentary agreement to be reached, the majority of the Democratic caucus believes that the underlying issues have not been resolved, which guarantees a new impasse in February 2026.

FUNDAMENTALS

Every month, OPEC publishes a report on the oil market that is read by analysts searching for signals about the direction the group foresees. The most recent one has caused waves in the market, not because of what it contains, which seems to be more of the same, but because of the effect it has had on prices. According to the interpretation of some analysts, the cartel now foresees a balance in the global market for 2026, due to increased production from non-OPEC countries and inventory recovery, which would represent a change from its previous forecast of a deficit.

This interpretation, allegedly extracted from the November report, triggered a wave of selling that affected prices by 4%. We say allegedly because, according to our reading, OPEC's November report maintains its demand outlook and makes minor adjustments to the incremental production from non-OPEC+ contributions (from 100 to 200 Kbpd).

On the supply side, the report does not mention that OPEC+ countries' production has fallen by 400 Kbpd between August and October. Additionally, and not mentioned in OPEC's report, the organization's shut-in crude volumes (referred to as spare capacity) are practically non-existent, and no determined effort is being made to reverse this trend.

OPEC's analysis projects that liquid production from non-OPEC countries will increase by approximately 1.3 Million Barrels per Day next year. In comparison, global oil demand is expected to rise by 1.6 million barrels per day to 106.2 Million Barrels per Day, in line with previous projections. The deficit that OPEC had forecast in October for 2026 will remain or tend to disappear, depending on the incremental volumes assigned to OPEC+. For now, as we mentioned, OPEC+ does not appear to be in a position to add additional volumes.

IEA Report

Another notable development is the International Energy Agency (IEA) 's monthly report, which was also published. The report maintains its forecast of a record supply surplus of more than 4 million barrels per day next year. This projection is based on the expectation that oil supply will increase by another 2.5 MMbpd next year, while demand will increase by only 770 Kbpd.

It's noteworthy that among the countries listed in that report as sources of the largest non-OPEC+ supply additions, none shows material changes in the next 14 months. In fact, growth forecasts in Brazil and Canada have diminished compared to forecasts from a few months ago from the same countries and the companies operating there.

In any event, given the preponderance of sources projecting a supply surplus, we will take as a base case for 2026 one of low prices with a downward trend. The scenario for our internal numbers will remain based on demand related to economic and population growth, and on supply driven by non-OPEC+ growth and by OPEC+ barely replenishing the natural decline of fields. This latter combination would keep supply, at best, in balance with demand and, consequently, prices would reach $70/bbl (Brent).

Current Policies Scenario

The IEA has also published its annual energy report, WEO 2025, which has generated news for the reincorporation of the Current Policies Scenario (CPS). The IEA had quietly abandoned CPS in 2019, under heavy pressure from environmental activist groups. Instead, it opted for a "Stated Policies Scenario" (STEPS), an "exploratory" scenario based on speculative climate policies. The IEA's use of STEPS raised concerns about the energy transition, which distorted projections of future oil and natural gas demand.

The resurrection of CPS brings back to the table the continued growth of fossil energy demand and distances the possibility that the goals of COP21, the Paris Agreement, can be achieved, and postpones the so-called "demand peak" that the IEA had been projecting.

Global Carbon Budget

In the same vein, the annual "Global Carbon Budget" report was published. In that report, one can read the following:

"With CO₂ emissions still rising, keeping global warming below 1.5°C is no longer viable," said Professor Pierre Friedlingstein of Exeter's Global Systems Institute, who led the study.

"The remaining carbon budget for 1.5°C, of 170 billion tons of carbon dioxide, will disappear before 2030 at the current emission rate. We estimate that climate change is now reducing the combined land and ocean sinks, which is a clear signal from planet Earth that we need to reduce emissions drastically."

Balancing energy needs and addressing climate change will continue to be an equation to be solved.

PRICE DYNAMICS

Over the past week, oil prices experienced a downward trend, primarily due to the potential for a global supply surplus, concerns about demand, and the rise in commercial crude inventories in the United States. However, at the end of the week, factors such as Ukrainian attacks against oil infrastructure in Russia and the hijacking of a tanker by Iran near the Strait of Hormuz provided temporary support for prices.

Thus, at the close of markets on Friday, November 7, the benchmark crudes, Brent and WTI, were trading at $64.39/bbl and $60.09/bbl, respectively, representing a 1.2% rebound from the previous week's close.

VENEZUELA

"Southern Spear" and Other Confusions

The accumulation of U.S. troops, warships, and combat aircraft continues in the Caribbean Sea region, to which this week's arrival of the aircraft carrier Gerald Ford was added. On Thursday, November 13, U.S. Secretary of Defense Pete Hegseth announced Operation Southern Spear on his "X" social media account, without providing further details about when and what military actions might take place. This operation has the theoretical purpose of combating drug trafficking and narco-terrorism in the Caribbean Sea and the Western Hemisphere, and defending the northern country against drugs. The operation involves the mobilization of the U.S. military, navy, technology, and air forces, described as the largest since the Gulf War.

The operation unfolds in a context of high tension between Washington and Caracas. Venezuela has denounced that the operation constitutes a plan to destabilize it and justify a possible military intervention, which has drawn criticism from some countries in the region: Colombia, Brazil, and Mexico. So far, it is reported that activity has been limited to attacks against 20 "narco-boats" in the Caribbean Sea and the Pacific Ocean, which have caused at least 79 casualties.

As if the tension were not already high enough, on Sunday, the 16th, the State Department issued a press release from Secretary Rubio:

"The State Department intends to designate the Cartel of the Suns as a Foreign Terrorist Organization (FTO), effective November 24, 2025. Based in Venezuela, the Cartel of the Suns is headed by Nicolás Maduro and by other high-ranking individuals of Maduro's illegitimate regime, who have corrupted Venezuela's military, intelligence, legislature, and judiciary. Neither Maduro nor his cronies represent the legitimate government of Venezuela..."

That same Sunday, President Trump, in an impromptu interview, added further confusion to the situation, suggesting they had not yet made a decision on an attack, but at the same time stated they had received signals from Caracas to initiate discussions they might consider. It's difficult to discern whether this confusion is by design or the product of conflicting visions within the U.S. administration.

Venezuelan Economy

Regarding the Venezuelan economy and the administration's main objective, the process of closing the gap between the official Bs./$ exchange rate and alternative rates is making little progress. The combination of fewer foreign currency revenues from hydrocarbon sales, a lower level of tax collection, and problems in settling foreign currency sales in USDT widened the gap for importers to satisfy their dollar needs. The difficulties faced in receiving "stablecoins" are attributed to a blockade exercised by OFAC on the process, which is foreseeable given the closeness of the USDT process to the U.S. Treasury. The cryptocurrency used may be replaced, but in exchange for liquidity and availability.

Thus, the gap between foreign exchange markets again exceeded 40%, with an official exchange rate of around 235 Bs./$, which further pressures inflation, which is reaching worrying levels.

Oil Operations

The oil situation has not achieved the announced growth, partly because Chevron's current license is considerably less attractive than its previous one, License 41, and external and internal political tensions keep the country’s risk so high that it scares away investment even under the protection of the Anti-Blockade Law.

Companies that benefited from OFAC licenses, Repsol and Maurel & Prom, are waiting for developments, carrying out only maintenance activity. OPEC's most recent publication confirms that Venezuelan production has slowed to about 950 Kbpd, according to its secondary sources while our estimates detect a similar trend, but at levels of 860 Kbpd.

Following the unexplained accident in the Jose area, located in the east of the country, which resulted in the emission of polluting clouds that covered the region, the operation returned to normal. There are no official estimates of the damage to facilities or the commercial value of the coke and sulfur incinerated in the upgrader complex.

Due to a lack of investment and challenges with diluent logistics, all activities are currently focused on reducing deferred production. Crude national output has stabilized at around 860,000 barrels per day (860 Kbpd).

Average Weekly Production

Average weekly production distributed geographically was as follows:

·       West: 227 Kbpd (Chevron: 108)

·       East: 117 Kbpd

·       Orinoco Belt: 516 Kbpd (Chevron: 125)

·       TOTAL: 860 Kbpd (Chevron: 233)

Refining and Petrochemicals

National refineries processed 234 Kbpd of crude and intermediate products, yielding 80 Kbpd of gasoline (of dubious quality) and 77 Kbpd of diesel. The PetroPiar upgrader continues to operate normally.

The petrochemical sector continued operating the methanol plants (Metor and Supermetanol) and fertilizer plants (Fertinitro) at the levels that gas availability allows; one of the ammonia trains is under maintenance, while the SuperOctanos plant remains out of service.

Exports

November exports are averaging below the scheduled 600 Kbpd, due to delays in vessel loading during the Jose accident and the availability of Merey 16 due to blending problems. Destinations for exported crude and products are limited to China, the U.S., and Cuba.

We estimate that the weighted price of exported crude is $30.4 per barrel.

AN INTRIGUING OIL MARKET

El Taladro Azul

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

Published  Originally in Spanish in  LA GRAN ALDEA 

Predictions of a global oil oversupply and geopolitical tensions related to Russia's persistent attitude of seizing Ukrainian territories at all costs marked the oil market this week. This resulted in a week of stable but downward-trending prices, albeit with intraday volatility.

The international community anticipates that President Trump will take action against the Cartel of the Suns and other terrorist organizations allegedly operating in Venezuela and its surroundings. Still, oil markets have not reacted to this threat that would affect supply, and sentiment leans bearish. On the other hand, the U.S. federal government shutdown is affecting jet fuel consumption nationwide. However, gasoline and distillate inventories have fallen sharply, suggesting that oil demand may be stronger than crude inventories indicate.

The United Nations climate change summit, COP30, is being held in Brazil between November 9 and 21, with less fanfare than previous COPs, for various reasons, including the absence of the U.S.

The ten years since the signing of the Paris Agreement at the United Nations Climate Change Conference (COP21), which sought to mitigate warming by placing limits on greenhouse gas emissions, have been nothing short of disappointing. For activists, politicians, and legislators, the measures have not been effective in achieving the sought-after goal, which is now generally considered unattainable. Thus, one of the challenges of the new summit is to guide environmental activity along more collaborative paths and minimize the dogmas on both sides of a discussion that remains necessary in the long term.

GEOPOLITICS

Geopolitical developments have generated a sense of global uncertainty. The belligerence between major powers presents the most destabilizing situation, a confrontation closely linked to debates about the future world order. As if it were a regression to the 20th-century Cold War, the specter of nuclear weapons raises its head again, this time in the speeches of Presidents Donald Trump and Vladimir Putin.

Elections in the United States

Different state and local calendars govern gubernatorial and mayoral elections in the U.S., and the most recent ones took place on Tuesday, November 4, 2025. These elections are important political barometers and do not follow a uniform federal cycle. President Trump has acknowledged that the results were not "good" for Republicans, but has assured that his party learned "much" from them, without being very specific about what. Across the country, participation in local elections was very high. In the gubernatorial elections in New Jersey and Virginia, where Democrats Mikie Sherrill and Abigail Spanberger won, they campaigned with an anti-Trump message.

In the New York City mayoral election, as expected, Zohran Mamdani emerged victorious: the first immigrant to be elected mayor of the city. Mamdani, born in Uganda to Indian parents, professes the Muslim faith; he is a member of the Democratic Party and the Democratic Socialists of America organization. His left-wing populist platform has made him the main political target of the White House, which labels him a communist and promises to besiege him economically.

Federal Government Shutdown

The U.S. federal government remains in an active shutdown, initiated on October 1st, which, as of this writing, has become the longest government shutdown in the country's history.

The shutdown, resulting from the lack of budgetary agreement between Democrats and Republicans, has caused approximately 750,000 federal employees to be temporarily furloughed, while others, considered "essential," continue working without receiving pay. The situation is significantly affecting various services, including delays and cancellations of hundreds of flights at major airports across the country due to the shortage of air traffic controllers, as well as the suspension of social programs such as SNAP (Supplemental Nutrition Assistance Program, also known as food stamps). A significant issue is the impact on the generation of economic statistics, which are essential for informed market decision-making.

Note: A Sunday night Senate agreement could be about to resolve the government shutdown, after a group of moderate Democrats dropped their key demand: a guaranteed extension of Obamacare subsidies. The agreement paved the way for a Senate vote in which eight Democratic defectors voted to break the legislative logjam and clear the first obstacle to reopening the government after nearly six weeks.

Putin's Tunnel Vision

Vladimir Putin's obstinacy in controlling all of eastern Ukraine through a war of military attrition and, in the civilian sphere, through intense bombing of indiscriminate targets throughout the country, continues to claim victims and raise the geopolitical temperature. Ukraine's response has been to defend its positions to the utmost, as on the Pokrovsk front; it also continues its drone attacks against Russian oil facilities, which are effectively affecting the Russian oil business and, therefore, its ability to finance the war.

The export of Russian refined products has been considerably reduced due to damage to refineries and shipping terminals, resulting in a surplus of crude oil for export. This surplus, however, faces limitations due to U.S. sanctions on oil companies Rosneft and Lukoil, as well as general sanctions imposed by the EU.

The issue of the U.S. supply of Tomahawk missiles to Ukraine remains on the table, awaiting only President Trump's approval. By the way, Trump negotiated an exception to the sanctions with President Orbán, allowing Hungary to access Russian fuel, which was justified by the country's limited access to maritime terminals for meeting its energy needs. Hungary, a full member of the European Union, thus distances itself from the Union's general position.

Gunvor Blinked

The Cypriot-Swiss commodities trading company, Gunvor, has withdrawn its $22 billion offer for Lukoil's foreign assets after the U.S. Treasury Department announced it would deny the license, calling it a "Kremlin puppet," and signaling Washington's opposition to the operation. The decision frustrates what would have been the largest acquisition in Gunvor's history. It highlights Washington's effort to make sanctions effective in isolating Russia and suffocating the income it uses in the war in Ukraine.

Gunvor responded by email that the Treasury Department's statement was "fundamentally wrong and false" and expressed its willingness to "take the opportunity to correct this clear misunderstanding." Meanwhile, Gunvor is withdrawing its proposal for Lukoil's international assets.

Peace in the Middle East, Little Progress

The Palestinian-Israeli conflict and the situation in the Middle East remain constant points of attention; the fragility of the ceasefire in Gaza and the successful Israeli incursions against Hezbollah in southern Lebanon maintain the region's instability. Hamas returned several bodies of hostages and Israeli soldiers.

Kazakhstan declared it will join the Abraham Accords between Israel and Arab and Muslim-majority countries. The action, announced on Thursday, is largely symbolic, as Kazakhstan has maintained diplomatic relations with Israel since 1992 and is geographically farther from Israel than the other Abraham Accord nations: Bahrain, Morocco, Sudan, and the United Arab Emirates.

FUNDAMENTALS

Elucidating the issue of oil oversupply is becoming increasingly complex, which is not surprising when dealing with projections of multiple variables with limited relative interdependence. Projections based on technical arguments, if not theoretical, do not correlate with current actual figures. For example, firm announcements of production increases often fail to materialize in reality. The International Energy Agency (IEA), the Energy Information Administration (EIA), and some banks, which have been projecting significant volumes of incremental production, now justify the delay in the materialization of their scenarios by indicating that a good part of the production "surpluses" are going to fill China's strategic reserves and that another significant volume is in floating inventory: in transit aboard tankers, presumably sailing without final buyers.

There are no solid reasons to doubt these explanations. Still, we consider that the strategic reserves of different countries around the world, including those of the U.S., which, by the way, must be replenished, form part of the firm demand that global supply must meet. As for the increase in floating volumes, this is due to the sanctions imposed on Iran, Venezuela, and Russia, which transit longer at sea due to their complex transshipment processes, including blending, name changes, and ownership changes, which aim to disguise the origin of the crude oil. This process of circumventing sanctions is becoming increasingly time-consuming as monitoring becomes more efficient.

In any case, for the remainder of 2025 and 2026, we believe the market is heading toward maintaining a healthy balance between demand and supply, under conditions in which the idle production capacity of countries such as Saudi Arabia, the UAE, and Iraq has been exhausted during the market recapture process. By the way, China's oil demand reached higher levels, attracted by higher refining margins, which intensified the utilization of the refining fleet, both public and private.

According to the ADIPEC conference (Abu Dhabi International Petroleum Exhibition and Conference), an annual event that brings together leaders, companies, and experts from the global energy sector, there are indications of healthy oil demand through 2026. This was complemented by OPEC+'s decision to pause production increases in the first quarter of next year; we think this is due to the non-existence of surplus crude. When asked about the possibility of excess oil in 2026, UAE Energy Minister Suhail al-Mazrouei stated that "I'm not going to talk about an oversupply scenario," adding that "I think everything we're seeing is more demand."

Eight OPEC+ members will meet again on November 30, the same day as the whole group meeting. The last element of the cuts for the entire group will remain until the end of 2026, according to the agreement announced last week.

Regarding the activities of the U.S., Canada, Brazil, Guyana, and Argentina, which are mentioned as sources of production growth in the coming months and years, we observe no significant differences from our analysis outlined in recent editions. In this regard, the U.S. and Canada maintain maintenance activities rather than growth, in line with the financial discipline that operators apply in this price range. Guyana and Brazil increase their production as new floating production units (FPSOs) enter service and carry out their "ramp up" process, resulting in approximately 150 kbpd additional in Guyana and 350 kbpd in Brazil until the end of 2026. In the case of Argentina, the foreseeable increases in scheduled activities are expected to be approximately 70,000 barrels per day (kbpd) over the next 13 months.

We conclude, based on all available information, that there is a global need for more energy and that conditions must be ensured to incentivize investments that meet these increases, including, in particular, the growth of AI and data processing centers.

Price Dynamics

Oil prices showed volatility, with a general downward trend, although they recorded a modest rebound at the end of the week. The futures market was marked by scenarios pointing to a global supply surplus, OPEC+ decisions, and an increase in U.S. commercial crude inventories. However, the increase corresponds entirely to higher crude imports and lower refinery runs, which were offset by a considerable reduction in gasoline and distillate inventories.

Thus, at market close on Friday, November 7, the benchmark crudes, Brent and WTI, were trading at $63.63/bbl and $59.75/bbl, respectively, representing a 1.8% loss compared to the previous week's close.

VENEZUELA

Are All Options on the Table?

Venezuela's political-economic situation has been characterized by the persistence of its economic crisis, which Nicolás Maduro's administration insists on camouflaging behind growth figures, in stark contrast to information issued by international organizations. Politically, pockets of instability and the repression of dissent mark the atmosphere. Added to this is the non-specific external military threat against the alleged narcoterrorist activities of the Cartel of the Suns. Unverified information suggests that communication channels exist for negotiating the end of the current administration. On the other hand, formation flights of military aircraft are observed in the national territory, and surface-to-air missiles are deployed, in an evident strategy by the regime to show strength internally.

In the economic sphere, the most significant development is that efforts to close the gap between the official dollar exchange rate and other markets have suffered a setback due to the cut in hydrocarbon exports in October. Without foreign currency, the outlined strategy cannot be implemented. In fact, a slight rebound in the gap has been observed in recent days. Despite efforts to cut public spending, the material reduction in foreign currency supply at the official rate, and the significant increase in foreign currency supply at higher rates, the official rate reached 231 Bs./$, and the gap with other markets stood at nearly 37%.

While private sources and international organizations agree that the country is in a recessionary process, characterized by reduced consumption, currency devaluation, and runaway inflation, official information from the officials in charge of the economy indicates sustained GDP growth of 8%.

Oil Operations

At the José Antonio Anzoátegui Complex (also known as José), located on the northeastern coast of the country, an operational emergency developed, escalating into an environmental emergency affecting the area, including surrounding towns and cities.

The accident appears to have originated in one of the complex's upgraders, which processes Orinoco Belt crude, specifically in an explosion related to coking drums. However, it has not yet been determined whether the incident occurred at PetroCedeño or PetroPiar (two of the Orinoco Belt's joint ventures), although all indications suggest that it took place at PetroCedeño due to its proximity to the complex. The flames reached the coke and sulfur accumulations located at PetroRoraima facilities, generating an enormous toxic cloud that enveloped a large area around the complex, and the surrounding cities were engulfed in a white cloud.

After at least two days, the fire was extinguished. As of Sunday night, there has been no official statement from either PDVSA or central or local authorities, nor have instructions been given for affected civilians. There are rumors of fatalities, but there is no official information.

This accident may have affected tanker loading and diluent unloading activities; however, due to the secrecy in information handling, delays have not been confirmed.

The delay in the arrival of Russian diluent affected Merey crude blending in the second half of October and continues to impact blending capacity. Apparently, the delay was due to logistical problems at the terminal and payment problems.

Production and Refining

Weekly crude production averaged eight hundred sixty-three thousand barrels per day (863 kbpd), geographically distributed as follows:

• West 228                  Chevron: 108

• East 118

• Orinoco Belt 517      Chevron: 125

• TOTAL 863              Chevron 233

National refineries processed 226,000 barrels per day (kbpd) of crude and intermediate products, yielding 75,000 kbpd in gasoline and 79,000 kbpd in diesel.

In the petrochemical sector, operations continued without changes from the previous week; however, it is unclear whether the accident in the Jose area impacted the operation of petrochemical plants.

Exports

Exports during the first days of November followed the pace of October, but we suspect there will be some delays due to the emergency the complex is currently experiencing.

We estimate that the weighted price of exported crude oil is $ 30.60 per barrel.

[1]: International Analyst [2]: Nonresident Fellow Baker Institute