CRY WOLF! OIL PRICES AND ELECTIONS IN VENEZUELA

El Taladro Azul  Published  originally in Spanish in  LA GRAN ALDEA

M. Juan Szabo and Luis A. Pacheco  

CRY WOLF! OIL PRICES AND ELECTIONS IN VENEZUELA

In the fable attributed to Aesop, it is told how a shepherd boy, to overcome his boredom while shepherding, began to shout, “here comes the wolf!”, to attract the attention of the inhabitants of his village, who came out of their houses ready to help him, only to realize that it was a practical joke, since there was no such wolf.

The money and oil markets seem to be reacting to a modern version of this fable, in which until now the eventual threat has proven to be imaginary. This time, the market is reacting to a series of more negative than expected US macroeconomic data, compounded by a build-up in crude oil inventories; a decline in refining margins added to those signs of heaviness in the market. Further to this is the perception of lower political risk in the Middle East, given reports of ceasefire negotiations between Hamas and Israel, and Iran's apparent position of not escalating the conflict.

This combination caused a notable decline in oil prices this week, with WTI and Brent Crude losing more than $5/BBL. The majority of the losses occurred on Wednesday, May 1, when prices fell more than a 3% with EIA 's announcements of increased US crude oil inventories, which underscored concerns about demand growth.

A wolf that at first glance seems real but could be just another bad joke.

Fundamentals

The behavior of oil prices has increased the probability that OPEC+ will extend current production cuts until the third quarter of 2024 and possibly for the rest of the year. On the other hand, ADNOC , the state oil company of the United Arab Emirates, announced that its crude oil production potential increased to 4.85 MMbpd, moving one step closer to its target of 5 MMbpd by 2027. This reality of this type of announcement is very difficult to verify, until the need or opportunity to produce arises. It is interesting to note that this news is made within the framework of what the OPEC countries describe as their responsibility to meet a growing demand for energy.

US production remains essentially constant, around 13 MMbpd, with a slight downward trend, at least that is what the reduction in drilling activity indicates; according to Baker Hughes , 8 units stopped drilling in the last week. However, some oil events in the US could catalyze a revival of activity in the near future:

·      After facing regulatory scrutiny, ExxonMobil (NYSE:XOM) closed its acquisition of Pioneer Natural Resources for approximately $60 billion. This transaction, the largest in “Shale” oil, will reshape production processes in the vast region of the Permian Basin. ExxonMobil is thus consolidating itself as the large company and main producer of oil and gas in that basin.

·      On the other hand, Marathon Oil, Occidental, Continental Resources and other operators are identifying new drainage points below the traditional Permian geological horizons. Everything points to the existence of deeper areas of the basin, competitive with shallower developments, which could extend the life of the Delaware sub-basin of the Permian.

Another contribution to the supply is a major Canadian event. After 12 years and $25,000 million of investment, Canada's Trans Mountain (TMX) pipeline expansion project began commercial operations, a significant milestone that is expected to transform access to global markets for producers in that country, particularly to the Far East market. Pipeline constraints have forced Canadian producers to limit production and sell discounted oil, but TMX will nearly triple crude oil transport capacity from Alberta to Canada's Pacific coast to 890 Mbpd.

These events in North America, combined with the growth in supply from Brazil and Guyana, could make it possible to cover the gap between supply and demand for the next two years, especially if the renewed projections of lower demand materialize.

Completing the picture of future oil demand perception, job growth in the United States slowed more than expected in April, and annual wage increases cooled. Although these signals of a more relaxed labor market are good news for the markets and the Federal Reserve, the FED decided to keep rates at their current levels and delay the rates cut until later.

The persistence of high inflation may just be a delay in the reduction in inflation and not necessarily a derailment of the process, which the central banks have conducted with maximum discipline.

 

Geopolitics

In the Middle East, the talks between the parties and the return of Hamas to Egypt have had an impact on the perception of the risk premium in the oil market, eroding it. Israel and Hamas appear to be seriously negotiating an end to the war in Gaza and the return of Israeli hostages. A leaked truce proposal hints at compromises from both sides after months of stalled talks, although the situation remains tense as Israel prepares for a ground offensive in Rafah. However, this Sunday, May 5, the talks encountered new obstacles that suggest a tortuous path forward.

Israeli utilities have deployed backup electrical generators, filled water reservoirs to the brim and beefed-up cyber defenses in case the Gaza conflict triggers a war against Israel on multiple fronts. Let us remember that the clashes in Gaza forced Israel to close its offshore natural gas platform, Tamar, for a few weeks. An all-out conflict with the Hezbollah movement in the north would raise concerns about the security of the Leviathan natural gas field in Mediterranean waters.

Meanwhile, on the Ukrainian front, Ukrainian gunners conduct limited operations against advancing Russian forces along the Eastern Front, while waiting for new ammunition, after the US approved $60 billion in military aid. British Foreign Secretary David Cameron pledged £3bn in annual military aid to Ukraine “for as long as it is necessary”.

Gazprom, the Russian state natural gas monopoly, posted its first annual loss since 1999, as gas shipments to Europe declined, with a cash deficit of $6.9bn, as the gas giant builds a major new pipeline to China.

The length of the war in this region, and the considerable losses caused on both sides, suggest that Ukraine and Russia will have to negotiate to end the war. Although Zelensky and Putin have repeatedly ruled out sitting down to talk, the economic repercussions seem to be reaching extremes; even though Russia appears to have found ways to get around sanctions on its crude oil.

With all these economic and geopolitical elements at play, prices reacted with a drop of more than 5% during the week. At the close of the markets on Friday, May 3, the Brent and WTI crude markers were trading at $82.96/bbl and $78.11/bbl respectively, almost $7/bbl less than the previous Friday.

 

VENEZUELA

Political/Economic Aspects

In the tropical version of the wolf story, which we hope this time becomes reality, the political opposition seems to have found, in Edmundo González Urrutia and María Corina Machado, an effective duo and strategy to confront the regime.

Much of the Venezuelan population, who had lost hope in the face of so many setbacks, has dealt them with the use of repression and control of the powers of the state, seem to believe today that there is a route towards the beginning of a change. There is still a long way to go to election day, but having the opposition aligned around a candidate approved by the CNE, looks like an important step forward.

The polls, which we know in Venezuela are not very robust, they quantify Gómez Urrutia's advantage over Nicolás Maduro as considerable, and suggest that, even on the regime's side, there are many who want change.

On the economic side, we must emphasize that the immediate effect of replacing the LG44 with the LG44-A has been stronger than expected, as described later. Oil exports were significantly reduced, which will be reflected in a reduction in income this month and next, affecting the regime's ability to maintain the policy of controlling the inflation rate through the Bolívar/$ exchange rate.

Hydrocarbon Sector

Oil production showed a small increase, averaging 782 Mbpd in the week, mainly due to increases in the fields operated by Chevron. According to Baker Hughes, 3 drilling rigs continue to operate in the country. Crude oil production showed a geographical distribution as detailed below:

•          West                            158 (Chevron 61)

•          East                             146

•          Orinoco Belt                478 (Chevron 92)

•          TOTAL                          782 (Chevron 153)

Refining remained at 214 Mbpd, with a gasoline production yield of 63 Mbpd, and around 75 Mbpd of diesel. Gasoline imports through barter maintained levels close to 50 Mbpd, mainly the agreements with Repsol/ENI and Chevron.

Venezuela's oil exports fell more than 35% in April after some customers withdrew tankers waiting to load in the face of revived oil sanctions.

Exports corresponded to 389 Mbpd of Merey-16 crude, 78 Mbpd of Boscán crude, and 85 Mbpd of Hamaca crude, for a total of 552 Mbpd of crude for April, almost 100 Mbpd less than the previous month: 262 Mbpd were sent to China, 70 Mbpd to Spain, 220 Mbpd to the US, and there were no shipments to India or Cuba; It is unknown if Reliance (India) is attempting to obtain a special license from OFAC. This represents a drop of $150 million in monthly income.

Chevron sent, to the Gulf of Mexico coast (PADD 1 and 3), a record volume of crude oil of 220 Mbpd, corresponding to 150 Mbpd of production, 24 Mbpd of diluent, the rest of inventories. 53 Mbpd of products were also exported, mainly residual fuel destined entirely to the Far East.

Note: This Monday, May 6, Maurel & Prom (Euronext: MAU), the French oil company, announced that it has received a specific license that it had requested on September 1, 2023, from the Office of Foreign Assets Control (“OFAC”). The license is in connection with its joint venture Petroregional del Lago, which operates the Urdaneta Oeste field on Lake Maracaibo in Venezuela.

The Specific License, granted on May 3, 2024, for two years, allows US entities and banks to interact with M&P in relation to its activities in Venezuela. As a result, M&P is able to continue operating in accordance with the set of agreements signed with PDVSA. M&P did not provide details of its investment plans or production expectations.

This announcement is an indication that OFAC is willing to grant licenses beyond License 44 A, thereby establishing a path for other companies to operate in Venezuela. Although the time it took to approve it (it was requested in September 2023) makes it difficult to correlate it with the current political situation in Venezuela.

 

OIL PRICES RISE IN RESPONSE TO ROBUST MARKET SIGNALS

 El Taladro Azul  Published  originally in Spanish in  LA GRAN ALDEA

M. Juan Szabo and Luis A. Pacheco  

For the first time since the beginning of April, oil prices ended the week showing a gain, without exceeding the $90/BBL barrier (for Brent Crude). The EIA reported a reduction in US crude oil inventories, which coupled with rising tensions in the Middle East has provided support to oil prices. On the other hand, a slowdown in US manufacturing renewed hopes of an interest rate cut in June, although signs on this remain ambiguous.

Geopolitics

Tensions in the Middle East rose after Israel increased nighttime airstrikes on Rafah after announcing it would evacuate civilians ahead of the assault on what it claims is a stronghold of the armed group Hamas. For now, the Israeli government appears to be ignoring the Biden administration's advice to wait, and negotiations over the hostages continue. Additionally, the Houthi rebel group resumed attacks on shipping, after taking time to recover from US and UK bombing. The MV Andromeda Star, a tanker traveling in the Gulf of Aden, was attacked on Thursday, and suffered minor damage. This appeared to be the continuation of an attack on the MV MAISHA, an Antigua/Barbados-flagged cargo ship operated by Liberia, which was successfully defended by the US Navy. In any case, threats to shipping through the Red Sea remain in force.

In this context, it is worth mentioning the wave of protests around the world against Israel, particularly in US universities. These movements of students and faculty have left university authorities trapped between the defense of the right to free expression and the anti-Semitism that seems to have awakened in those august institutions; a governance crisis that further complicates the electoral panorama of the northern country.

On the other hand, the changing situation on the Russian/Ukrainian war front complicates the geopolitical situation in that Central European region. Moscow has renewed attacks on Ukraine's energy facilities, causing power outages and calls for the population to save on electricity consumption. During the week of April 18, Ukrainian missiles hit a Russian military airfield on the Crimean Peninsula (annexed by Moscow in 2014), managing to destroy part of the air defense equipment, as reported this Thursday by Ukrainian military intelligence. On Saturday the 27th, it was reported that Ukraine had attacked the Ilsky and Slavyansk oil refineries, in the Russian region of Krasnodar, causing fires at the facilities. The approval of $65 billion in US military aid gives important support to the Ukrainian counteroffensive.

Fundamentals

Regarding the discipline of compliance with OPEC+ cuts, Iraq reaffirmed its intention, after months of 200 MBPD of overproduction, to comply with OPEC+ guidelines. Iraq is committed to limiting its oil exports to 3.3 million b/d until the end of the year, regardless of the outcome of the OPEC+ meeting in early June. For its part, US production remains unchanged, even though the number of active rigs, according to the Baker Hughes report , was reduced by 6 rigs.

U.S. oil and gas industry consolidation continued at a high pace in the first quarter, with a geographic focus on the prolific Permian Basin. But activity lost momentum in the second quarter, according to a report from Enverus Intelligence Research. 

On another page, the demand for crude oil has not behaved as predicted by the International Energy Agency (IEA), particularly in developed countries. A greater reduction was expected based on increases in efficiency and replacement of energy generated by fossils with renewable energy. In developing and underdeveloped countries, demand has risen proportionally to the increase in GDP per capita. Supply, on the other hand, has only grown in some countries such as: Brazil, Canada and Guyana, but below the growth in demand.

US manufacturing statistics indicated a reduction in activity, but US Treasury Secretary Janet Yellen, in an interview with Reuters, flagged the possibility of revising first-quarter GDP growth to higher levels. Data released on Friday revealed that the personal consumption (PCE) index, excluding food and energy, rose 2.8% in the year ending in March, while the PCE indicator of all items rose 2.7%., both slightly above forecasts. Both measures rose 0.3% month-over-month; some read this as a sign of a rate cut on the horizon.

The fundamentals continue to indicate a market without changes in the demand / supply equation, which supported prices, which also benefited from the geopolitical tailwind.

At the close of the markets, on Friday, April 26, the Brent and WTI crude markers were trading at $89.50/BBL and $83.85/BBL, respectively.

In other news

·      Chevron's Permian Basin production in the first quarter fell less sequentially than the 2%-4% it had forecast three months ago, but it still expects to remain on a growth trajectory in the second half of 2024, its CEO said. , Mike Wirth, April 26. The 859 Mboepd (thousands of barrels of oil equivalent per day) that Chevron produced in the basin during the first quarter, were just 1% less than the volumes of the fourth quarter of 2023. A decrease that should persist in the second quarter of 2024 due to the company's intention to increase its inventory of drilled but incomplete wells during the first half of the year.

·      Furthermore, Wirth stated that Chevron is not affected by the reactivation of sanctions on Venezuela. “We are not investing new capital in Venezuela at this time,” he said. “All the spending is self-financed with cash flow from operations. “We have been extracting oil and bringing it to the United States, which has been helpful to the American refining system, not only ours, but others as well.” Wirth stated that, last year, Venezuela's production increased in the joint ventures in which Chevron participates from approximately 120,000 b/d to approximately 180,000 b/d; a figure that looks inflated.

·      Payara, ExxonMobil's third Guyana producing field, came online in November 2023 and was producing at its full nameplate capacity of 220,000 b/d in January. It now appears to have boosted Guyana's total output even further, it suggested the company's first quarter earnings report, released April. 26.

 

VENEZUELA

THE CAROUSEL OF ELECTIONS, SANCTIONS, ECONOMY, AND REPRESSION

Political Aspects

The surprising agreement around the candidacy of Edmundo González Urrutia has once again left the regime in disarray. Not knowing the legitimacy of González Urrutia as a candidate is more complicated than simply preventing Corina Yoris from accessing the CNE registration system, or the disqualification of María Corina Machado. Any trick attempted against the opposition candidate, which is never ruled out, could have a high international cost, including the relation with President Lula da Silva or President Petro. There is also the repeated issue of the International Criminal Court and its investigations into the regime, and the repressive actions that continue despite this.

Sanctions and their effects

Regarding the reactivation of sanctions on the businesses of PDVSA and its subsidiaries, by replacing General License 44 with LG 44-A, we are in the transitional period of 45 days, which OFAC established to wind-down the activities authorized under LG 44. Let us remember that an individual license can be requested from OFAC, now or later; This new requirement could delay or suspend some activities currently in development.

The agreements that PDVSA has signed with private companies for the development of oil and gas fields, such as Repsol, Maurel & Prom will have to wait for authorization or confirmation that they only require a comfort letter from OFAC. The potential delay in receiving approval will limit the generation of new production potential for 2024.

The most important project, of those announced so far, is undoubtedly the development associated with the extension of the PetroQuiriquire block in western Venezuela. Repsol would have the opportunity to increase production by 50 Mbpd in the next 2 years to 3 years, if they are willing to invest around MM$2.,000.

The most significant impact of the new conditions will be on crude oil sales, which LG44 allowed to be carried out in legitimate markets, considerably reducing the discount required to place “sanctioned” crude oil in “gray” markets. For example, it is not known whether the Indian company, Reliance Industries Limited (NSE: RELIANCE), will continue buying Venezuelan crude oil covered by the transition period, or wait for a new authorization from OFAC. In summary, we project a hiatus in the sales prices achieved starting in October 2023, as well as in new investment activities in production fields and their respective marketing.

 

Electoral Economy

Meanwhile, the management of economic variables is developing as expected, but with restrictions. It is necessary to keep inflation at bay, keeping the exchange rate relatively constant, limit or avoid the issuance of money, and adjust the level of public spending to electoral needs. These requirements, with limited financial resources, are difficult to meet in parallel. In fact, public spending, although still high, has shown a clear decreasing trend and the exchange rate is beginning to rise discreetly, for now.

 

Hydrocarbon sector operations

Oil production began to reflect the results of the drilling activity in PetroMonagas and PetroIndependencia with an increase of 4 Mbpd. Thus, this week's production reached 778 Mbpd, distributed throughout the country, as follows:

•          West                155 (Chevron 58)

•          East                 146

•          Orinoco Belt     477 (Chevron 90)

•          TOTAL              778 (Chevron 148)

The mixing operations of the Merey 16 segregation continued to have problems due to the lack of enough light crude oil.

Refining reached 212 Mbpd, with a gasoline production of 64 Mbpd, and around 74 Mbpd of diesel. The import of gasoline through barter maintained high levels, anticipating the possible hiatus due to the termination of LG44. The higher level of refining is due to the start-up of distillation unit No. 3 in Cardón.

Crude oil exports are also being accelerated in preparation for potential restrictions; However, we observed a decrease in tankers approaching the Jose terminal. The export of products is, from the perspective of volume availability, guaranteed by the higher levels of processing in Paraguaná. Our current estimate for average exports for the month is 660 Mbpd and 60 Mbpd for crude oil and products respectively.

THE MARKET ABSORBS THE IMPACT OF GEOPOLITICS

El Taladro Azul  Published  originally in Spanish in  LA GRAN ALDEA

M. Juan Szabo and Luis A. Pacheco  

The history of conflicts in the Middle East has traditionally indicated that the noise of cannons induced price increases due to the risk of supply. But the events of recent months seem to indicate that these atavisms have lost relevance. The swing in oil prices recently undoubtedly reflects the uncertainty surrounding the conflict in the Middle East, particularly the possibility of an extended confrontation between Israel and Iran. In the absence of direct impacts on oil operations, however, the market has reacted with qualified realism.

Initial reports of Israeli attacks on Isfahan province, in response to Iranian attacks, sent Brent above $90/bbl, before falling back to $86/bbl, after statements from Tehran that appeared to rule out a military response. On another scale, but relevant in these latitudes, the reactivation of oil sanctions against Venezuela had a similar effect, although at a much lower level. The initial market reaction to the announcement was of an upward trend, however, when the text of the new conditions was disclosed, the market ruled out its relevance.

Middle East

Israel responded to last week's Iranian attack with a timely and precise attack on the heart of Iran: Isfahan, a region that is home to important Iranian military infrastructure, such as a large air base, a large missile production complex and several nuclear facilities. The attack, not confirmed by Israel, was apparently intended to demonstrate that Israel can bypass Iranian defenses and hit targets inside that country with precision. It served as a nominal response to the Iranian attack, but without escalating the situation to an all-out war between the two countries and their neighbors. Seen in a more global context as well, it also raises questions about the effectiveness of anti-aircraft defense of Russian origin. In all events, the result of this semi-skirmish is the verification that Israel's defense systems passed the test, while Iran appeared vulnerable.

Additionally, the defense of Israel during the Iranian attack had the cooperation of Jordan, Egypt, and Saudi Arabia. This cooperation should not be taken for granted, but has turned out to be an important factor in the stability of the region. This alignment probably has a high component of the ancestral confrontation between Sunnis and Shiites, but it should not be taken as permanent either. Iran will most likely return to its traditional role of financing and acting through its network of “proxy” terrorists and not getting directly involved in regional conflicts.

Iran, as expected, called the attack a failure, and conveyed the message that there would be no response, even though hours earlier Iranian Foreign Minister Hossein Amir-Abdollahian told CNN that if Israel took military measures against Iran, its response would be “immediate and at the highest level.” The market, and analysts, interpreted that there will be no escalation, at least for now, which translated into a reduction in the regional geopolitical risk premium, which in turn generated a drop in oil prices.

Ukraine

The US House of Representatives approved an aid package to Ukraine of about $61 billion. The measure had stalled in Congress and affected Ukraine's ability to contain Russian advances. Despite limited ammunition and defense equipment on the Ukrainian side, Russian forces continue to experience very high death and injury rates in Ukraine; Throughout February they reportedly experienced the highest rate since the beginning of the full-scale invasion: a total of 983 casualties per day. This, to a large extent, reflects Russia's commitment to conventional infantry and attrition warfare; The BBC speaks of more than fifty thousand Russian casualties. Ukraine rarely comments on the magnitude of its battlefield deaths. In February, President Volodymyr Zelensky said 31,000 Ukrainian troops had been killed, but estimates, based on US intelligence, suggest higher losses. No other attacks on Russian oil infrastructure have been reported this week.

Market Fundamentals

OPEC+ continues to watch the bulls from the sidelines. So far it has shown no signs of beginning to reduce its cuts; Saudi Arabia and other OPEC members in the Middle East were estimated to have well over 4 million barrels per day of idle production capacity in March, according to the US Energy Information Administration (EIA). We estimate that it is a considerably lower figure.

In the US, production continued its slow decline, confirmed in EIA reports. The Biden administration's oil policy generates few incentives for companies to invest. On the one hand, it announces the beginning of refilling the strategic reserve (SPR), today at its lowest historical level, and then changes course to remove more crude oil from the SPR to control gasoline prices this summer.

In parallel, President Biden moved Friday to limit both oil and gas drilling and mining in Alaska. State officials said the restrictions will cost jobs and make the U.S. dependent on foreign resources, but they will please environmentalists. The Interior Department finalized a regulation to block oil and gas development in 40% of Alaska's National Petroleum Reserve to, the administration says, protect the habitats of polar bears, caribou and other wildlife and the way of life of indigenous communities.

Meanwhile, the US House of Representatives overwhelmingly passed legislation aimed at countering China's purchase of Iranian crude oil, as part of a package of bills introduced in response to Iran's attack on Israel. Something that is unlikely to have much impact on the market.

On the supply side, none of the countries identified as contributing to the increase in production in the coming years shows important incremental developments in the short term, perhaps except for Brazil, which is scheduled to start up an FPSO (Floating Production, Storage and Off-loading) during this year.

So growing demand, which is approaching 103 MMbpd, is not being matched by increases in supply. It will be necessary to dip into inventories, which in turn will put upward pressure on crude oil prices, or for OPEC+ to change its strategy.

Prices

As we already mentioned, volatility was what characterized the price behavior this week. The fundamentals are consolidating a deficit oil market, constantly pressured by the changing perception of political risks coming from the Middle East.

Prices remained high at the beginning of the week, as the market digested the Iranian attack of the previous week, only to fall once international pressure seemed to have convinced Israel not to carry out a retaliatory attack. Surprised by the unexpected Israeli “attack” in the early hours of Friday, prices rose momentarily until the market internalized the temporary pause of the “give and take.”

At market close on Friday, April 19, Brent and WTI crude oil markers were trading at $87.29/bbl and $83.14/bbl respectively, down 3.5% and 4% relative to the previous week.

 

VENEZUELA

Policy

The Unlikely Agreement

This Friday the 19th, on the eve of the end of the deadline to introduce changes to electoral nominations, something happened that seemed impossible just a few hours before. In a meeting between María Corina Machado, the representatives of the PUD and the governor of the state of Zulia, Manuel Rosales, a unanimous agreement was reached regarding the nomination of a single candidate.

The Venezuelan opposition chose Mr. Edmundo González Urrutia as its candidate. The diplomat, who has the support of the main parties and the leaders María Corina Machado and Manuel Rosales, will be Maduro's main rival in the presidential elections of July 2024. González Urrutia, a career diplomat, was ambassador to Argentina and Algeria. Although little is known about him outside the opposition corridors, it emerges today as the option that would carry forward the hope for change of more than 80% of the population.

Governor Rosales aspired to be the candidate, but apparently, he could not obtain sufficient support from the rest of the parties that constitute the Unitary Platform and, fulfilling his earlier promise, he stepped aside. Some of those present revealed that González Urrutia did not have that designation in his personal plans, but he finally accepted and hence becomes Nicolás Maduro's main rival for the presidential elections on July 28. With this move, new scenarios open, but we will see what the regime has up its sleeve.

Oil Sanctions

The most anticipated news recently, displaced by political events, arrived late in the afternoon of Wednesday the 17th, when the Office of Foreign Assets Control (OFAC) announced and subsequently published The General License 44-A , replacing LG 44, which expired on April 18.

The initial reading of the new license suggests that the status of sanctions against PDVSA (which is what LG 44 deals with) was restored to the state before the promulgation of LG 44 on October 18, 2023. Further, it grants a period of 45 days so that businesses in progress under the authorizations of LG 44 can have a safe closure.

In general terms, this means that the following activities covered by LG44, among others, must be winded-down in an orderly manner:

1.     the production, extraction, sale, and export of oil or gas from Venezuela, and the supply of related goods and services

2.     the payment of invoices for goods or services related to operations in the oil or gas sector in Venezuela.

3.     the delivery of oil and gas from Venezuela to creditors of the Venezuelan government, including creditors of entities in which PDVSA owns, directly or indirectly, a 50% or more interest, for the purpose of repaying debt.

General License 41, which covers Chevron's activities from 2022, was not modified and continues.

The new scheme, according to the press release from the Department of State , allows companies that choose to continue marketing, purchase/sale activities and investments in hydrocarbon developments, to request Individual Private Licenses, which OFAC would consider. This could result in a delay in activities. As it stands in the licensing system, opaque businesses, briefcase companies and other artifices would probably not receive licenses from OFAC, and the dark export route and the anti-blockade law would be reactivated.

Economy and Oil

In the economic aspect, a slight increase in the exchange rate was recorded, exceeding Bs40/$, which puts pressure on inflation, which had a turning point at the beginning of the month. Public spending, although it remains high, shows a decline compared to previous weeks, probably due to the greater volume of foreign exchange injection required to control the exchange rate.

The regime's National Assembly approved two new oil projects. This is the formation of a new mixed company that will replace the current PetroSanFelix, corresponding to the original PetroZuata, nationalized when ConocoPhillips was expropriated. This EM will be made up of 51% PDVSA and 49% of a company called A&B Oil and Gas, a consulting and project management company. It is rumored that there is a Brazilian company behind this company, larger but without oil experience. The probabilities of a real reactivation of the project are low due to the enormous investments required to recover it.

The second approval corresponds to the expansion of the PetroQuiriquire block, in the western region, in which Repsol has a 40% shareholding. Currently, the block has the Mene Grande, Barúa and Motatán fields. The approved extension to the south incorporates the La Ceiba, Tomoporo and Ceuta fields, the latter in Lake Maracaibo. These three fields, currently operated by PDVSA, are the most prospective in the Lake Maracaibo basin. The wells are deep and expensive but have the potential to bring the field to a production exceeding 70 MBPD of medium and light crude oil. These two legislative decisions, at the request of the executive branch, represent the largest privatization of the oil industry of the revolutionary era. We imagine they will require OFAC licenses, or in any case “comfort letters”, to be able to make investment decisions.

Operations in the Hydrocarbons sector

Oil operations have not shown major shocks, the only area that was pressured was export, due to the rush to load the largest number of tankers before the end date of the LG 44 period.

The electrical problems had only minor effects on refining activities.

Production in the last 7 days averaged 773 Mbpd, very close to last week's levels, distributed across the national geography, as follows:

•          West                            152 (Chevron 58)

•          East                             146

•          Orinoco Belt                475 (Chevron 88)

•          TOTAL                          773 (Chevron 146)

Chevron is about to begin drilling its third well at PetroIndependencia, in the Orinoco Belt. The mixing operations of the Merey 16 segregation continue to have issues due to the lack of light crude oil.

The refining process managed to process 194 Mbpd with a gasoline production yield of 42 Mbpd. National production, along with gasoline imported through barter, supplied approximately 80% of what was demanded by the domestic market.

The export for the month of April is heading towards a crude export of around 650 Mbpd and 55 Mbpd of average products for the month. Until now, it is unknown whether Reliance of India will suspend its purchases of Venezuelan crude oil upon changing the sanctions regime or, on the contrary, will request a Special License to continue as a client of Venezuela. The decision will probably be linked to price conditions.

Hedge Fund Elliott Investment Management is reportedly structuring a bid to participate in the U.S. court-ordered auction of shares of Citgo Petroleum Corp's parent company. Investment bank Centerview has been hired to draft a potential bid on behalf of investors and creditors (which could include ConocoPhilips) pursuing Venezuela's foreign assets now in auction by federal court in Delaware. The auction seeks to recover claims for expropriations and debt defaults incurred by the Republic and PDVSA in the administrations of Chávez and Maduro.