U.S. gasoline inventories also rose last week (+27 million barrels) as implied demand fell below 9 million barrels per day while production increased despite refinery runs decreasing for the second week: weekly reported inventories do not seem to be the best indicator for setting a medium-term trend in terms of drain/fill – attention is needed.
U.S. crude production remains at 13 million barrels per day with no signs of short-term growth; Baker Hughes reported a further reduction in active rigs by 7 units, all in the Shale Oil basins.
Additionally, meteorological observers classified Beryl as a Category 4 hurricane and are monitoring a tropical wave designated 95L traveling across the Atlantic, which can potentially move into the Gulf of Mexico by the end of next week.
Prices on their upward path reached two-month highs amid rising tensions in the Middle East. “We do not want war, but we are preparing for all scenarios”, Israeli Defense Minister Yoav Gallant told reporters in Washington. The geopolitical risk premium is starting to occupy the attention of market players, overshadowing the negative figures of U.S. inventories.
To complete the scene, the strict supply management of OPEC+ will keep the market in deficit in the second half of 2024. All these considerations seem to indicate that the oil market will strengthen in the coming months.
Of the four men competing for the position, the only reformist is Masoud Pezeshkian. He believes that Iran must return to negotiations and agreements with the West if it wants any chance of convincing the U.S. to lift sanctions that have adversely affected the country's finances intermittently since the Islamic Revolution of 1979. 1979. Pezeshkian believes that negotiation is the only way Iran, a country of nearly 90 million people, can fix its broken economy and reintegrate into the global system.
The Islamic Republic has largely been isolated from global financial markets for years. The 2015 nuclear deal with the West, which briefly suspended sanctions (the United States withdrew in 2018), did not last long enough for Iran to enter the global economic system or receive any significant external investment.
However, as OPEC's third-largest producer (3.226 million barrels per day in May 2024), Iran remains an indispensable cog in global energy markets. In the past two years, the Biden administration, fearing a global oil supply slowdown and rising gasoline prices at home, has “eased” the enforcement of sanctions on Iranian crude shipments, which has helped a material increase in crude exports. However, on June 27, the U.S. State Department announced renewed sanctions on the transport of petroleum and petrochemical products.
Pezeshkian's main opponent, Saeed Jalili, holds the opposite view. For Jalili, sanctions are almost a badge of honor, and he would likely align more with China and Russia; he has already supported the Kremlin's war in Ukraine. For Jalili, for example, complying with FATF (Financial Action Task Force) anti-terrorism financing standards would undermine Iran's support for groups like Hamas and Hezbollah; his radical views are unpopular among educated middle-class Iranians in the country's urban centers but resonate with the provincial population. Late on Sunday, the 30th, results seemed to indicate that none of the candidates would achieve the required majority for a first-round decision, with the reformist candidate leading; there will be a runoff on July 5 between Pezeshkian and Jalili.
Meanwhile, on the Ukrainian front, the use of Western weapons to attack targets on Russian territory seems to have halted the Russian advance towards Kharkiv. Ukrainian attacks on airfields, refineries, fuel storage yards, and terminals in Russia aim to undermine its drone launch capability and break supply lines to troops on the battlefronts; Ukrainian aviation has also succeeded in hitting strategic targets in Crimea, under Russian control since 2014. The Kremlin reacted strongly, indicating that Western decisions were bringing a confrontation with NATO closer.
Moving south to the increasingly complex Middle East situation, Israel is facing action on three fronts: Iran-related terrorist groups Hamas, Hezbollah, and the Houthis. While talks about a potential ceasefire in Gaza continue, the Israeli defense minister, in a meeting in Tel Aviv with White House advisor Jake Sullivan, indicated that: “Israel has an obligation to expand the ground operation in Rafah in southern Gaza, dismantle Hamas, and recover the hostages.”
The defense minister also indicated that they were prepared to confront Hezbollah if necessary. Iran's response was angry and threatening: “If (Israel) launches a large-scale military aggression, a devastating war will ensue,” according to the Iranian diplomatic mission. “All options, including full involvement of all members of the resistance axis, are on the table,” warned the Iranian representative. The so-called resistance axis includes Iran-affiliated actors in the Middle East: the Syrian regime, the Lebanese movement Hezbollah, Palestinian Hamas, Yemen's Houthi rebels, and Shiite militias in Iraq.
Regardless of the “give and take” between Iran and Israel, any hope that Yemen's Houthis would lose momentum in their effort to destabilize international maritime transport vanished after their recent attacks, causing the sinking of a second ship. For much of the world's maritime transport, the equation does not change. Around 70% of maritime traffic already avoids the Red Sea route and will continue to stay away. For those still navigating the dangerous route, there are few signs they will change course. The Houthis attacked the Liberian-flagged bulk carrier Transworld Navigator for the fourth time on Sunday, according to U.S. Central Command.
In other news, the U.S. electoral campaign saw the first and possibly last debate between Joseph Biden and Donald Trump. The widespread perception is that Biden did not show the mental faculties required to be president for a second term, a perception that will extend in voters' minds in the coming months through media coverage and Trump's ads. The day after the debate, Biden returned to the campaign looking more vigorous and addressed the issue, saying he was no longer good at debating but still good at speaking the truth. According to Newsweek, Biden's chances of winning the Democratic nomination dropped by 30% after the debate, and it is reported that the Democratic Party has gone into panic. Perceptions of Biden dominated the headlines to the point of overshadowing any analysis of Trump's performance; however, alarms have been raised around the world.
Preliminary results of the French parliamentary elections, called extemporaneously by President Macron, suggest a resounding victory for the far right, followed by the left coalition; all to the detriment of President Macron's centrist coalition – which seems to have erred in its strategy. The second round will be held on Sunday, July 7, in districts where there was no winning majority. Another news that reshapes the scenarios in Europe.
· Russian energy giant Gazprom signed a memorandum with the National Iranian Gas Company (NIGC) for natural gas developments in Iran. Details of the memorandum, signed during a visit by Gazprom head Alexei Miller to Iran, were not disclosed. Iran has the world's second-largest natural gas reserves after Russia; Moscow has long sought to penetrate that sector. U.S. sanctions have hindered Iran's access to technology and slowed the development of its gas exports. Gazprom has seen its natural gas supplies to Europe, once the source of two-thirds of its gas sales revenue, fall to post-Soviet lows due to the conflict in Ukraine. In July 2022, Gazprom signed a memorandum of understanding on energy cooperation with the National Iranian Oil Company (NIOC) worth around $40 billion, but no concrete projects have emerged from that agreement.
· Italian oil company ENI signed a binding agreement with Hilcorp, one of the largest private companies in the U.S., with extensive experience in Alaska operations, for the sale of 100% of the Nikaitchuq and Oooguruk assets owned by ENI in Alaska. This transaction is consistent with ENI's strategy of rationalizing its upstream activities by rebalancing its portfolio and divesting non-strategic assets.
· The first offshore exploration well in Argentina by Norway's Equinor showed no indication of oil or natural gas, a company source said: “Although we have been able to confirm the presence of a working petroleum system in the basin, the data collected and subsequent analysis have not provided enough justification to continue exploration in this area.” The block, located in the CAN-100 license off the coast of Argentina, is operated by Equinor in partnership with Argentina's YPF and Anglo-Dutch Shell.
· The FERC (Federal Energy Regulatory Commission) granted Venture Global authorization to construct Calcasieu Pass 2 LNG, the company's third export facility, and the related pipeline project, CP Express. The pipeline, 85 miles (136.79 kilometers) long, is planned to transport natural gas from Jasper County, Texas, to the CP2 LNG project, with connections to existing natural gas transmission pipelines. Venture Global plans for the CP2 LNG Project to have a nominal liquefaction capacity of 20 million metric tons per annum (MTPA) and associated facilities on the east side of the Calcasieu Ship Channel in Cameron Parish, Louisiana.
PRICE BEHAVIOR.
Concerns about the expansion of geopolitical risks, uncertainties of disruptions, 100 Mbpd in Ecuador, and potential disruptions due to weather events have underpinned crude oil prices. This is despite gloomy news in terms of drilling activity and inventory accumulation in the U.S. and concerns about inflation. Thus, crude oil futures gave up some of the week's gains on Friday, having initially reached two-month highs, although they closed with gains for the month. At the close of markets on Friday, June 28, Brent and WTI benchmark crudes were priced at $85/bbl and $81.54/bbl, respectively.
VENEZUELA
Cautious Optimism.
Less than a month before the elections, the electoral campaign continued intensely. The general perception of the population, as well as various surveys, rate the opposition's campaign as very successful in the province, where the regime's vote has previously concentrated. The message, led by the tireless María Corina Machado, focused on the need for global change and the reunion of Venezuelans, has resonated with the people.
Meanwhile, the official campaign has appeared opaque, reactive to the opposition's steps, full of vituperation, old promises, with abuse of state resources, and reprisals against opposition campaign collaborators, particularly those closely helping María Corina Machado's mobilizations. Consequently, the population's confidence in an adverse result for the regime seems to be increasing, as the gap between Edmundo González and Nicolás Maduro continues to grow, at least according to opinion polls; optimism that must be managed cautiously.
On the economic side, the regime has maintained its tactic of keeping the Bs/$ exchange rate constant at a high cost, dedicating more than half of the available foreign exchange to this objective; leaving insufficient funds to increase public spending, as is traditional in the final stretch of an election.
Hydrocarbon Sector
It is reported that the number of active drilling rigs in the country would increase to five. In PetroIndependencia, a second rig is about to start, contracted by Chevron, and a drilling rig that operated in PetroMonagas a couple of months ago and was sent for major maintenance is back in that Joint Venture.
Last week's production averaged 794 Mbpd in line with the previous week, distributed geographically as detailed below:
· West: 170 (Chevron 68)
· East: 141
· Belt: 483 (Chevron 98)
· TOTAL: 794 (Chevron 166)
Chevron continues to increase its production, reaching 166 Mbpd by the end of June, in line with its goals for 2024.
Refineries processed 230 Mbpd of crude and intermediate products. Gasoline production reached 74 Mbpd, while diesel production remained at 72 Mbpd, insufficient to supply the national market. The state of Barinas, after Nicolás Maduro's public complaint, received gasoline but at the expense of other regions, where the shortage worsened.
Crude exports for June averaged 656 Mbpd. The destinations of the exported crude were: 230 Mbpd to China, 189 Mbpd to the U.S. (via Chevron), 135 Mbpd to India, 83 Mbpd to Europe, and 19 Mbpd to Cuba. According to Reuters, the barrels to Cuba are being sent on tankers sailing under the radar, also known as the “dark fleet.” PDVSA has had to resort to this mechanism due to the decrease in the availability of the state fleet of ships from both countries that previously covered this route. Cuba and its main oil supplier, Venezuela, have exclusively used their oil tankers for trade between the two countries for over a decade.
CITGO
Robert Pincus, the “special master” appointed by the Delaware court for the CITGO auction case, requested to reschedule the hearing to present the judge with the received offers, according to a motion filed on Friday. The hearing, tentatively scheduled for July 15, would indicate the beginning of the final stage of the auction designed to satisfy well over 20 billion dollars in claims against Venezuela and the state-owned company, Petróleos de Venezuela SA. Pincus indicated that the offers submitted last week need more time to be analyzed and requested the judge reschedule the date to September 19.
The main companies in line to collect from the sale are Canadian miners Crystallex and Gold Reserve and the U.S. oil giant ConocoPhillips, according to court documents. Along with other claimants, the debts to be covered amount to over 20 billion dollars in judgments against Venezuela for arbitration awards, which logically could not be satisfied by the CITGO auction alone. Some analysts foresee a long legal road ahead, especially if the judge in the case agrees to this new date, now after the elections in Venezuela, an unexpected benefit.
