M. Juan Szabo [1] y Luis A. Pacheco [2]
Published Originally in Spanish in LA GRAN ALDEA
Although not directly related to oil price formation or world geopolitics, we feel it is our duty, as Venezuelans, to preface this week’s report with the human and material devastation that has struck Venezuela, especially the central coast and the capital, Caracas. We write with sorrow for the human suffering and anger at the regime’s neglect and indifference.
On Friday, June 24, two powerful earthquakes struck a country already reeling from two decades of corruption and incompetence, leaving in their wake many dead and injured, families without homes, and a stark demonstration of the absence of functioning institutions. At the time of writing, it is difficult to estimate the full extent of the damage, but it will undoubtedly rank among the worst in recent history.
THE MARKET SEEKS SAFETY IN AN ELUSIVE PEACE
Over the course of the week, oil prices continued their slide, approaching $70/bbl and erasing nearly all the geopolitical risk premium tied to the blockade of the Strait of Hormuz, returning to trading levels last seen before the outbreak of the U.S.-Israel-Iran war. This sharp market decline reflected a dramatic shift in sentiment: markets moved from fearing a supply shortage to anticipating a temporary oversupply.
The main catalyst for this shift was the implementation of the historic memorandum of understanding (MOU) between the U.S. and Iran, which allowed the Strait of Hormuz to reopen—albeit with ups and downs—and initiated negotiations between the parties to the conflict. For the first time since the armed conflict began on February 28, near-term delivery prices traded below medium-term contract prices (“contango”). This reflects an expectation of a sudden glut of crude ready to be absorbed, as well as temporary demand adjustments put in place because of the supply shortfall, which will take time to unwind. This market perception is also supported by forecasts published by the International Energy Agency (IEA), which has revived its narrative about the approaching oversupply “wolf.”
The road to a lasting peace, or at least a return to the situation that preceded the conflict, is not without obstacles. During the week, Iran attacked a cargo vessel as it crossed the strait in Omani waters and launched drones toward Bahrain, actions characterized as a breach of the truce. The ongoing hostilities between Israel and Hezbollah in Lebanon have likewise reignited concerns about the durability of the preliminary agreement to end the war with Iran; this is despite the signing of an agreement between Lebanon and Israel, which has not escaped the surrounding fragility. Secretary of State Marco Rubio toured the region to advance the ongoing talks.
Russia and Ukraine
In Europe, repeated Ukrainian drone strikes on Russian refineries have disrupted fuel production and distribution networks, forcing Moscow to prioritize domestic supply, which, combined with the continued decline in Russian oil production, is constraining Russian exports. President Putin has been forced to acknowledge the fuel shortages the country is experiencing.
In addition, in a dramatic shift in its war strategy, Ukraine is advancing a military siege of the Crimean Peninsula, effectively cutting it off from Russia and depriving it of energy supplies; it is worth recalling that Russia occupied Crimea in 2014, in the first chapter of its strategy to annex all of Ukraine. This new Ukrainian strategy is undoubtedly an additional source of pressure aimed at persuading Putin to sit down and negotiate an end to a war that has now lasted more than four years.
Geopolitical Fundamentals
Following the reopening of the Strait of Hormuz, tanker traffic through the strait averaged 31 crossings per day, with ups and downs caused by Iran’s repeated threats to close it again. In a single 24-hour period this week, 18 million barrels left tankers that had been trapped in the Persian Gulf. In response, hedge funds, betting on diplomatic optimism, sold off futures contracts at elevated prices on a massive scale, accelerating the technical collapse in prices. Analysts at international agencies—chiefly the IEA—and at major banks recalibrated their models, and the prevailing view is that, once the supply shock has passed, the global oil sector will move toward a structural supply surplus heading into next year. We believe this will be a temporary situation, as demand regains its momentum, much as it did following COVID-19 in 2020.
The geopolitical path looks clear for now. The agreement signed between the U.S. and Iran is expected to lead, within 60 days, to a stable peace that will keep the Strait of Hormuz open to commercial traffic and return to the market the 8 to 11 million barrels per day of oil that fell victim to geopolitical blackmail, generating a sudden supply surplus. Saudi Aramco has already resumed loading at Ras Tanura, and Qatar has announced the startup of several LNG trains. It is also estimated that 60 days will not be enough to resolve every outstanding issue, and that there will be ups and downs—as seen this week, when Iran continued to threaten a new blockade—but that the agreement will be extended, since reaching a resolution is in both parties’ interest.
This euphoric welcome of freed-up supply translated into a sharp drop in prices, reflecting market relief at the restoration—albeit only partial—of something that had been part of daily routine before the war.
Impact on Global Inventories
Meanwhile, the market is largely overlooking the cumulative drawdown of more than 1 billion barrels in commercial inventories worldwide, plus an estimated additional 300 million barrels from various countries’ strategic reserves. These inventories will need to be rebuilt and even increased to sustain global activity within the safety margins that have now been reassessed. Even allowing for the IEA’s exaggerated crude surplus forecasts, normalizing inventories will require more than six months, which leads us to estimate that the price per barrel could rise by $5 to $10/bbl, in line with the traditional inventory-to-price relationship—a relationship that will tend to weaken as flows on both sides of the equation stabilize.
The controversy over the terms of the U.S.-Iran agreement regarding unfrozen funds and reconstruction continues to generate political noise. President Trump denied that direct funds had been released to Iran and said the money under U.S. control would be used exclusively to purchase food from American farmers for shipment to Tehran, a claim Iran disputed.
In any case, the continuity of this fragile agreement is not guaranteed, given the clouds gathering over the peace deals—such as the persistent war between Israel and Hezbollah in Lebanon and Iran’s push to charge a toll for ships passing through the strait, an idea Iran is trying to persuade Oman to adopt jointly.
These risks and sporadic attacks from both sides are difficult to mitigate and will keep resurfacing until the Persian Gulf countries build transport alternatives outside the strait.
China and the U.S.
Meanwhile, Chinese crude imports have remained at extremely low levels, around 6.5 million barrels per day, mainly due to very tight refining margins, which have lowered refinery utilization rates and refined product exports. In recent days, purchases have picked up, coinciding with the reopening of the Strait of Hormuz, and reports indicate that state-owned refineries will begin increasing imports from Iran following the suspension of U.S. sanctions.
In the U.S., the Energy Information Administration (EIA) reports a slight increase in domestic production. Meanwhile, Baker Hughes reports an increase in rig activity: 10 units in the U.S. and 11 in Canada. However, the strengthening U.S. dollar and the Federal Reserve's relatively conservative stance amid concerns over residual inflation limited the recovery in energy asset values.
Price Dynamics
During the last week of June 2026, international oil prices fell by close to 10%, wiping out the year’s accumulated gains and returning to levels seen before the outbreak of the Middle East conflict. Brent crude closed the week trading at $71.99/bbl, down 4.34% in its final session and down 10.86% cumulatively for the week, while WTI crude settled at $69.23/bbl, breaking through the psychological $70/bbl floor after a weekly decline of 9.60%.
In summary, as noted by June Goh of Sparta Commodities, "a broad-based sell-off is underway as the market reacts to the increasing flow of barrels leaving the Strait of Hormuz, while China has yet to see a recovery in crude demand."
VENEZUELA
NATURE TURNS ON THE VENEZUELAN FAMILY
Late in the afternoon of June 24, as the country was finishing a holiday commemorating the Battle of Carabobo, two earthquakes measuring 7.2 and 7.5 on the Richter scale struck the country just 39 seconds apart, both centered in Yaracuy state in the west-central region. The earthquakes were linked to the movement of the Caribbean plate against the South American plate and were closely tied to the Boconó, San Sebastián, and El Pilar fault system. These faults make up the main system of geological deformation in Venezuelan territory. They account for much of the country’s historical seismic activity and underlie many populated centers. In the June 24 earthquakes, the fault system acted as an “insulator” to the west and as a conductor of energy toward the center of the country.
Amid the grim prospect of thousands of deaths—many due to delays in rescue efforts—along with numerous injured and affected residents and the near-total absence of health services, the country is once again exposing its lack of preparedness to handle emergencies. What little institutional capacity existed before Chavismo took power has since disappeared or become inoperative due to a lack of equipment and training. Today, the population depends on international aid. There are no words to express the grief of a country wounded not only by nature but also by its political leadership, as if suffering from an autoimmune disease.
International assistance began arriving from countries such as El Salvador, Mexico, the United States, Spain, Ecuador, Chile, and Israel; aid has reportedly been received from 24 countries—paradoxically, including some that the Venezuelan regime considers political enemies. The population clings to the hope that these rescue teams, equipped with technology and specialized resources that the Venezuelan state lacks, will manage to save many of those still trapped under the rubble before the critical window for finding survivors closes. With U.S. assistance, the main runway at Maiquetía, the country’s principal airport, was repaired and inspected and can now be used to facilitate the arrival of aid.
Faced with evidence of the state’s weak response, the regime, after an initial paralysis, has begun seizing control of the narrative to reinforce its political grip and reshape reality through propaganda. It remains to be seen whether the influx of U.S. personnel and equipment onto national territory will prompt Washington to reassess its current policy, which had rested on the assumption that the regime is reasonably effective.
Despite the pain the country is going through and the mourning that weighs on all Venezuelans, both within and beyond its borders, we must continue to fulfill our purpose of reporting on the week’s economic and oil developments.
As we noted earlier, June is shaping up to be the month of the heaviest intervention by the Central Bank of Venezuela (BCV) in the foreign exchange market, with total intervention of nearly $2.0 billion. The official and intervention exchange rates converged at Bs 622/$, narrowing the gap with the parallel market to roughly 25%.
Impact on the Oil Industry
Venezuela’s oil production and export infrastructure have not suffered significant damage or major operational disruptions following the destructive twin earthquakes that struck the country. Despite the severe humanitarian crisis and extensive structural damage in civilian areas, the energy sector remains stable. The major foreign multinationals operating in Venezuela alongside PDVSA—including Chevron, Repsol, ENI, Maurel & Prom, and Shell—confirmed that their assets and facilities continue operating safely.
The critical Cardón IV offshore gas project (Perla field), in the west of the country and operated by Repsol and ENI, continues producing normally. This is vital for the country, since it supplies 50% of the gas required by national thermoelectric plants. Tankers continue loading crude and fuel normally at the Jose, Puerto La Cruz, Amuay, Cardón, and Bajo Grande terminals.
Only minor logistical delays have been reported in paperwork and administrative approvals. The greatest risk to crude production levels at the fields stems not from the direct seismic impact but from the continued, intense power outages affecting the country due to the disaster (in the north-central zone), even though that area is geographically distant from the traditional production zones.
Economic Outlook
According to estimates from trade associations such as Fedecámaras, projected national GDP growth is unlikely to be dramatically disrupted, as the oil industry remains intact. This view may be somewhat optimistic, however, as reconstruction efforts and the management of displaced populations will put pressure on the state’s cash flow.
UNDP (the United Nations Development Program) estimated preliminary losses from the earthquakes in Venezuela at $6.7 billion. This has prompted Washington to ease certain sanctions through the Treasury Department to facilitate the rapid entry of humanitarian aid and expedite energy investments. OFAC issued General License 60 (GL60) for this purpose.
Oil Operations
Production remained essentially flat, averaging 935 Mbpd, distributed geographically as follows:
• West 258
• East 110
• Orinoco Belt 567
TOTAL 935
National refineries processed 248 Mbpd of crude and intermediate products, yielding 74 Mbpd of gasoline and 76 Mbpd of diesel.
In the petrochemical industry, the Moron complex sustained some infrastructure damage, but there were no immediate consequences, since it has been out of service for some time.
Monthly exports, based on the latest available information, are on track to reach 750 Mbpd of crude and 50 Mbpd of residual fuel oil.
The Venezuelan basket price averaged $79.6/bbl, in line with the decline in international prices.
[1] International Analyst
[2] Nonresident Fellow, Baker Institute
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