M. Juan Szabo [1] y Luis A. Pacheco [2]
Published Originally in Spanish in LA GRAN ALDEA
One of democracy's most defining features is that, sooner or later, the politician must face the judgment of the ordinary citizen at the ballot box. In the case of the United States, that citizen verdict reverberates beyond its borders, since the decisions of its executive branch extend into the geopolitics of regions with their own interests and objectives — and these, in turn, reverberate back into the elections.
It is this context that the Trump administration is beginning to internalize, one that, beyond its superpower rhetoric, confronts geopolitical situations in which its intervention does not entirely serve its own interests. Given this, the White House is looking to deliver results it can present to voters as progress — both internationally and in the health of the domestic economy, a factor just as decisive as geopolitics, if not more so, ahead of the November midterm elections.
Gasoline prices are one of the key variables every U.S. administration seeks to manage. Lowering and keeping fuel costs down at American gas stations would, under current conditions, mean signing agreements with Iran, even if that contradicts the administration's original plans. From that standpoint, a deal ensuring the normal flow of oil and energy products worldwide could be politically justified if it helps keep fuel prices reasonably low.
Venezuela could also become part of that communications strategy. The effective implementation of the three-phase plan the White House announced early in the year, combined with massive aid for the enormous damage caused by the two earthquakes on June 24, provides elements that could be presented as concrete progress. As for the narrative of a supposed “Venezuelan miracle,” even though reality is far from ideal, the administration will try to cast it in a positive light for American voters, at least until November 2026. Our analysis of that situation is detailed in the Venezuela section.
Even though these tactical moves are designed for U.S. domestic politics, they affect global market perceptions and behavior, given the conviction that Trump will do everything in his power to keep crude prices low and narrow refining margins, at least in the U.S. This is reflected in the sharp sell-off of positions in the futures market.
Meanwhile, American oil companies have been adding rigs and fracturing crews in the U.S. shale basins, which has driven a slight uptick in production in that region.
As a result, we find ourselves in a scenario where a disconnect has emerged between the price of prompt crude and the prices that fundamentals would otherwise suggest. Indeed, the precarious level of global inventories would, under other circumstances, keep oil prices substantially higher than what we see today — something that will likely happen once China returns to the market and temporary demand savings fade.
For now, oil prices will likely remain at a floor around $72/bbl for Brent crude (similar to the pre-war price) until transit through the Strait of Hormuz normalizes. The strait is currently in an “escape” mode for tankers that had been stranded for months, which will make it possible to gauge the Persian Gulf countries' current and near-term capacity to bring back the production shut in over the last 100 days.
Geopolitical Fundamentals
Although transit through the Strait of Hormuz is trending toward normalization, outbound traffic still far exceeds inbound traffic due to the administrative work of verifying and updating insurance, as well as the availability of tankers willing to operate on this route. The initial flood of crude into the market will be followed by a recovery period in the production of the Persian Gulf countries that had shut in. The United Arab Emirates (UAE) (now free of quota limits) and Saudi Arabia will recover quickly thanks to smaller cuts, given their alternative market access; Kuwait, Iraq, Iran, and Qatar will take longer because of the depth of the production cuts they had to implement — especially Iraq, given its heavier crude segregations and the looming expiration of its pipeline agreement with Turkey over the Kirkuk-Ceyhan line.
In any case, during these two stages of normalization and beyond, the incremental crude volumes will help rebuild the traditional cushion used to stabilize the oil market through global crude and product inventories. Along the same lines, China will have to resume crude imports well above the levels set by its temporary economic discipline, since its economy shows no sign of slowing and it is unwilling to keep drawing down its strategic reserve or cut its refining runs, which limit its share of the lucrative regional products market.
In addition, the war between Russia and Ukraine has escalated into mutual destruction, with a tragic toll in lives, civilian facilities, and Ukrainian infrastructure. On the other hand, Ukraine has triggered Russia's worst fuel crisis in decades through its strikes on Russian refineries and terminals, the most recent one near St. Petersburg. At the same time, the Crimean Peninsula, now under Russian control, remains paralyzed under a strict state of emergency due to energy shortages and constant attacks on its logistics and defense networks. Russia has been forced to import gasoline from India and ration fuel.
As if that weren't enough, Europe is cracking down harder on tankers fraudulently using Cameroon's flag registry to transport Russian oil, including boarding vessels on the high seas — which has led Cameroon to remove 39 of these ships from its registry, adding yet another obstacle to Russian crude exports.
As for the production increases forecast in the International Energy Agency (IEA) report, we find that sustained growth in Canada is not feasible given the constraints on moving crude to the U.S. and Pacific markets, at least until the new 1.0-million-barrel-per-day pipeline is built, which will take several years to complete. Brazil and Guyana will contribute to production increases as new FPSO (Floating Production Storage and Offloading) units come online.
Guyana's FPSO rollout plan (Stabroek block) includes the Errea Wittu (Uaru project), Jaguar (Whiptail), and Hammerhead units, scheduled to come online between 2026 and 2029, plus an additional project proposed for the Longtail field in 2030. Guyana will reach an oil production capacity of nearly 1.7 million barrels per day (MMbpd) by 2030. For now, production is estimated at 1.1 MMbpd by the end of 2026.
In Brazil, there will be more activity in the Presalt area with 5 FPSOs coming online over the next two years, adding roughly 900 Mbpd of production. However, the country has been grappling with steeper-than-expected declines, which limit its net production growth.
Argentina also contributes to the incremental supply picture, with modest but steady growth typical of the early stages of shale basin development, as is the case with Vaca Muerta.
The seven OPEC+ countries — Saudi Arabia, Russia, Iraq, Kuwait, Kazakhstan, Algeria, and Oman — met virtually on July 5, 2026, to review global market conditions and prospects. The seven participating countries decided to implement a production adjustment of 188,000 barrels per day, stemming from the additional voluntary adjustments announced in April 2023. This adjustment will take effect in August 2026. This is nothing more than a nominal decision that will give participating countries the chance to accelerate their compensation for prior overproduction.
The U.S. shows an increase of 17 rigs in drilling activity over the past two weeks, according to Baker Hughes. Over the same period, Primary Vision reports an increase of 13 hydraulic fracturing crews, pointing to modest growth in crude production that could reach 14 MMbpd by year-end.
In short, the return of Persian Gulf production, Russia's struggle to maintain its export levels, and rising output from Guyana, Brazil, and, to a lesser extent, Argentina and the U.S., set against modestly growing demand and unusually low commercial and strategic inventories, do not appear to add up to the expected overproduction scenario over the next 18 months. This is why we expect prices to trend moderately higher as inventories rebuild.
Price Dynamics
The crude market closed the second quarter with its steepest drop since the pandemic, wiping out most of the geopolitical risk premium built up since February. Prices fluctuated throughout the week but held a broadly downward trend, losing about 4% for the week. Brent crude opened the week around $73/bbl, fell to a low of $69.50/bbl, and closed Friday, July 3, with a slight technical stabilization around $72.12/bbl. WTI crude opened the week above $70.69/bbl, dropped to four-month lows near $67.00/bbl by midweek, and closed Friday at $69/bbl.
Unlike crude, natural gas prices saw a notable rebound and high volatility, hitting multi-week highs on seasonal demand pressure. U.S. natural gas futures traded higher and closed the week at $3.24/MMBtu, driven by spikes in volatility. In Europe, the TTF benchmark for the August contract held firm and rose, closing Friday, July 3, at €45.25/MWh. In both regions, unusually high temperatures drove up air-conditioning use, pushing gas consumption for power generation to yearly highs.
Demand for natural gas at U.S. liquefied natural gas (LNG) export terminals remained extremely strong. This was reinforced by reported structural damage at Persian Gulf facilities (such as Ras Laffan), which forced global buyers to look to U.S. supply instead.
Venezuela
The Double Earthquake Shakes Up Politics and the Three-Phase Plan
Venezuela is facing one of the worst crises in its recent history following the devastating seismic “doubleheader” of June 24, 2026. This disaster has not only caused unimaginable human and material damage but has also deepened the country's structural fractures and reshaped the political dynamic that had been unfolding since January 3. The humanitarian catastrophe is unfolding alongside a scenario of U.S. oversight, the collapse of public services, and growing social outrage over the emergency mismanagement by the triumvirate acting as the interim executive.
The seismic doubleheader shook the north of the country with an intensity that makes it the deadliest in Venezuela in the past hundred years. It severely affected the country's most populous area — Caracas, and the states of Miranda, Aragua, and Carabobo — and, catastrophically, the state of La Guaira, which was declared a disaster zone.
Official figures already show 3,342 dead, 17,740 injured, and losses exceeding $12 billion, while international projections fear far greater human and material losses.
The political landscape had been shifting dramatically since the start of the year following the capture of Nicolás Maduro by U.S. forces. The acting president has the backing and recognition of the Trump administration, which says it is providing close support aimed at stabilization, recovery, and a phased transition. On July 3, the constitutional deadlines that gave Delcy Rodríguez's interim government a thin veneer of legality expired, and the lack of a clear political path forward adds further complexity to the situation. Polls, both before and after the devastating earthquake, show deep dissatisfaction across all segments of the population with the origin and conduct of the interim government.
The public had already grown tired of the double talk. There is talk of amnesty and coexistence while hundreds of political prisoners remain behind bars; there is talk of tripling oil revenues and reconstruction funding, yet the average Venezuelan is still earning the same wage and getting scarce public services.
The natural disaster that has plunged the country into mourning has reshuffled priorities. It exposed the lack of institutional strength stemming from ongoing erosion and improvisation. Government figures such as Jorge Rodríguez demand that the tragedy "not be politicized," which means they won't accept criticism. The interim government has opted for tight, centralized control over collection centers, aid, and media coverage, going so far as to crack down on private initiatives or centers collecting supplies and rescuing people trapped under the rubble, which has sparked widespread anger and protests.
Likewise, these events derailed the electoral agenda and the fledgling negotiations over democratic conditions that opposition sectors (such as Dinorah Figuera, at the invitation of the U.S. government) had been holding with the interim government. Those plans and potential negotiations to reform the judiciary and the National Electoral Council (CNE) have lost priority on the agendas of both Caracas and, more importantly, Washington.
Meanwhile, opposition figures such as María Corina Machado have announced their intention to return to stand with the public and shake up the political landscape amid popular discontent. The interim government and the White House have thrown up countless obstacles to her return to her own country, where she enjoys enormous popularity. Media outlets have reported that a White House official described MCM's interest in returning to Venezuela at this time as “obscene political opportunism.” The remark is baseless given MCM's political and social track record, and it reveals the divisions within the administration over Venezuela.
Even before the tragedy, efforts to revive the oil, mining, and power sectors were nearly at a standstill due to legal uncertainty, the destruction of key infrastructure, and opaque handling of the allocation and reallocation of oil blocks, as well as the negotiations to adapt existing contracts to the demands of the new laws. The urgency of saving lives and clearing rubble now collides head-on with a fragile institutional framework, opening a period of deep uncertainty over the country's democratic and overall future.
On the economic front, funding needs for managing the humanitarian crisis and the need to rebuild roads and other basic services are the dominant concerns, along with dealing with the potentially 25,000 people left homeless. Without question, the bulk of the reconstruction financing will have to come from multilateral organizations, from Venezuelan funds frozen in accounts managed by the U.S. Treasury Department, and from international aid — of which the U.S. will need to be a key pillar, as part of the oversight role it has played since January 2026.
The Central Bank of Venezuela (BCV), for its part, drove an accelerated devaluation of the currency in the official market to bring it closer to the parallel market, narrowing the gap between the two to 15%. The official exchange rate opened the week at 623.02 Bs./$ and climbed sharply to close Friday, July 3, at 652.97 Bs./$ — an increase of more than 7% in just one week. The parallel market (Binance) stayed relatively stable, ranging between 736.10 Bs./$ and 758.93 Bs./$ heading into the weekend.
Macroeconomic data continued to show a slowing trend in inflation, with monthly figures in the single digits (6.3% in the most recent reading). Even so, the sharp devaluation of the local currency this week generated pressure and uncertainty over businesses' cost structures at the start of the second half of the year.
Oil Operations
Oil operations, as we reported last week, continue without major disruptions; in fact, June was the year's strongest month for production and exports.
Production for the week averaged 942 Mbpd, distributed geographically as follows:
• West 262
• East 111
• Orinoco Belt 569
TOTAL 942
National refineries processed 260 Mbpd of crude and intermediate products, yielding 80 Mbpd of gasoline and 77 Mbpd of diesel.
In the petrochemical industry, no changes in activity were reported at the El Tablazo and Morón complexes. At the same time, the José Complex continues operating the same plants, albeit at a reduced level due to low natural gas feedstock supply.
June exports reached 1.17 MMbpd, of which 760 Mbpd came from the month's production and 410 Mbpd from inventory drawdown and re-exported diluent. Exports over the past 6 months show that more than 43 million barrels of inventories accumulated by the end of last year and early January 2026 have been placed on the market, leaving just over 6 million barrels remaining of the 50 million the U.S. originally estimated at the start of the oversight period.
[1] International Analyst
[2] Nonresident Fellow, Baker Institute
