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
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