BETWEEN CONFUSION AND HOPE

 El Taladro Azul

M. Juan Szabo [1] y Luis A. Pacheco [2]

Published  Originally in Spanish in  LA GRAN ALDEA

During the week, the market oscillated between concern over possible excess supply and signals of robust demand. Added to this were outbreaks of violence in the Middle East, where ancestral feuds, both ethnic and religious, are never far from the surface.

Likewise, news emerged about events directly affecting the supply/demand balance: the announcement of new economic sanctions against Russia by the European Union; Iraqi drone attacks against Kurdish oil installations, which affected the region's production capacity (250 thousand barrels per day); and force majeure in Ecuador, now in its third week, sowed uncertainty.

Another relevant piece of news, but without material effect on prices, was the arbitral tribunal's decision to favor Chevron in the case against Exxon. This decision gives the green light to Chevron's merger with Hess, a $53 billion transaction that includes assets in Guyana and had been suspended for almost two years. One of the collateral results of the merger is that Chevron moves its Caribbean interests from Caracas to Georgetown, and now becomes an ally of one of the Venezuelan regime's greatest nemeses: ironies of oil.

FUNDAMENTALS

Last week, global oil fundamentals moved to the rhythm of mixed signals. OPEC+'s strategy of continuing to add more volumes to the market, internal problems in Iraq and Ecuador of very diverse natures, and an improved perception of the future of oil demand indicate an uncertain path forward.

Much coverage has also been given to a supposed "boom" in production increases that would materialize across different latitudes. These announcements, some made by producing countries or by specialized companies and analysts, also sow confusion in a world that continues to talk about energy transition. The list of countries includes Saudi Arabia, United Arab Emirates (UAE), Iraq, Canada, Brazil, Guyana, Kazakhstan, Argentina, and even Algeria. It has been announced that, together, these countries would increase production by figures approaching ten million barrels per day (10 MMbpd) over the next 4 years. These production levels place the market in a trembling state of inevitable oversupply.

A preliminary analysis of the feasibility of such growth leads us to think that the mentioned numbers are either publicity exaggeration or represent a generation of incremental potential that would have to discount the natural decline of base production, which generally ranges between 8% and 25%, depending on the basin and type of production under consideration. Additionally, many of the mentioned developments have a control valve: prices. Development will be delayed or canceled if prices indicate that demand is not growing proportionally. Only technology can change this reality, creating new hydrocarbon applications and uses, which appear unlikely in the time horizon being considered.

OPEC+ and Other Producers' Situation

Meanwhile, OPEC+ countries are advancing the dismantling of production cuts they imposed to stabilize the market in the five post-pandemic years. However, in OPEC's monthly report, only growth of around 350 thousand barrels per day is observed, well below the more than 600 thousand barrels per day announced for these dates. In July, despite a projected increase of another 230 thousand barrels per day by the end of the month, this will be neutralized by events in Iraq, which has used drones to attack oil installations in an attempt to resolve its political problems with the Kurds. It is mentioned that the damaged infrastructure has reduced production in that region by around 130 thousand barrels per day on average for this month.

United States

Production is slowly declining in the US, although it remains above thirteen million barrels per day. According to the Energy Information Agency (EIA) report, commercial crude inventories fell again by almost four million barrels (3.9 MMbbls) despite an increase in imports of more than two million barrels (2.0 MMbbls) and without significant changes in refinery utilization percentage.

The rig count figure did show a change in direction, incorporating seven incremental units, according to the Baker Hughes report. But this is not a change with respect to the trend in terms of oil since all the incremental rigs contracted are drilling for natural gas in preparation for increased demand from liquefaction plants. The same report indicates an increase of 37 units outside the US compared to the previous month.

Ecuador

Ecuador's oil production is affected. Less than 100,000 barrels per day of crude are being produced, and the Coca River basin landslide continues, threatening the integrity of the only two oil pipelines that allow oil exports from the eastern basin. According to former state company executives, a relocation plan for the final section of the pipelines has existed since 2021. Still, its execution has been postponed due to the high costs of that project.

GEOPOLITICS

Syria: New Focus in Middle East Conflict

Syria is beginning to become another geopolitical focus in the Middle East. The sudden fall of Bashar al-Assad's regime, although surprising in its speed, was not so unexpected. It is considered a collateral event to the weakening of Iran and its proxies in the region and Russia's military exhaustion from the invasion of Ukraine, both countries being great allies of Assad's regime. The new Syrian government, a coalition of guerrillas united only by anti-Assad sentiment, has managed to control the country except for skirmishes with remnant militias of the fallen regime.

Israel and other Western countries viewed the change in Syria favorably, and the lifting of USA’s economic sanctions fueled talk of a potential Abraham Accord with Syria. After Assad's regime fell on December 8, 2024, Israel invaded Syria to eliminate military installations left by the fallen regime and its Hezbollah allies in the southern region. During its invasion, Israel took control of the UN Disengagement Observer Force buffer zone. Israel's official position in the Syrian civil war has been, until now, one of strict but interested neutrality.

The Druze Question

Syria has a complex ethno-religious distribution. In the country's south, the Druze population is concentrated, mostly residing in the As-Suwayda province. The Druze are an ethno-religious group that differs from Muslims and in Syria were sometimes in favor of and then against Assad's regime. The Druze are not limited to Syria; it is estimated that there are more than one million Druze concentrated mainly in the mountainous regions of Lebanon, Syria, Israel, and Jordan. In Israel, they have official recognition and are integrated into society. The religious leader of the Druze is Hikmat al Hijri, born in Venezuela.

The conflict in Syria has escalated following the start of Israeli bombings against Syrian territory. This development occurs after several months of tensions in the south of the country between the Druze minority and forces aligned with the government established in Damascus. Recently, the confrontations have led to air strikes and the use of tanks and heavy weaponry by Israel against government installations, alleging the protection of the Druze population.

The disagreement between the Druze and current authorities stems from the fact that the former support a federal structure for Syria, while the central government seeks to consolidate authority in Damascus; the Kurds in the north maintain a similar position, also rejecting centralization. Currently, there is a ceasefire agreement between Syria and Israel, facilitated by US mediation, although the situation remains in a state of tense calm.

Ukraine and Russia

Regarding the situation in Ukraine, President Trump has said he is disappointed with Vladimir Putin for not getting the Russian president to change his position regarding a ceasefire, but that he has not closed the chapter. When asked if he trusted the Russian leader in a BBC interview, Trump responded: "I don't trust almost anyone." The fact is that his approach to the conflict seems to be changing. The US president announced plans to send weapons to Ukraine and warned that he would impose severe tariffs on Russia if there were no ceasefire agreement within 50 days. Trump also backed NATO and affirmed his support for the organization's common defense principle. This, if firm, represents an essential change from his position over the last six months.

In this same vein, the European Union (EU) agreed, this Friday the 18th, on a new sanctions package against Russia for the invasion of Ukraine—number 18—which includes a reduction in the maximum price of Russian oil that can be exported without transporters being sanctioned, official sources reported. Additionally, sanctions were increased against "ghost ships" transporting Russian crude. The measure limits Russia's oil revenues while maintaining global market supply stability. This measure reflects the EU's intention to strengthen its economic influence in response to Russia's actions in Ukraine. The sanctions also seek to intensify pressure on Russian financial and energy sectors.

China

To the surprise of many analysts, but in a reassuring signal for oil markets, China's economy showed improved GDP figures in the first half of 2025, with year-over-year growth of 5.3%. According to official data, it exceeded expectations despite challenges such as US tariffs and the decline of the real estate market. China's GDP reached $9.24 trillion in the first half of 2025. The growth was attributed to increased production and domestic demand due to stable employment and household income increases. Retail sales increased 5.9% year-over-year in March, driven by government incentives. Deflation and youth unemployment remain concerns.

Despite these results, conjectures and interpretations of Communist Party political events continue to fuel the debate about the certainty of Xi Jinping's permanence over time.

PRICE DYNAMICS

Oil prices have been volatile during the last week, with a slight downward trend. Factors such as geopolitical tensions, economic uncertainty, OPEC+ decisions, production interruptions in Iraq and Ecuador, and inventory movements have influenced market perception in different directions, contributing to an uncertain environment for the short term.

At market close on Friday, July 18, the Brent and WTI benchmark crudes were trading at $69.29/bbl and $67.355/bbl, respectively. Both benchmark crudes lost 1.5% compared to the previous week.

VENEZUELA

Prisoner Exchange, But No Policy Changes

On Friday, July 18, an unprecedented exchange of hostages and prisoners was completed between the governments of Venezuela, the US, and El Salvador, with the intervention of President Nayib Bukele and, according to Nicolás Maduro, former Spanish President Rodríguez Zapatero.

Components of the exchange:

1. Liberation of Venezuelans imprisoned in El Salvador: 252 Venezuelan migrants who had been deported from the US in March of this year and confined in El Salvador's Center for Terrorism Confinement (CECOT) were repatriated to Venezuela. Some of them had been indicted in the US for allegedly being part of the "Tren de Aragua" criminal gang. Maduro's regime called this repatriation a rescue.
2. Liberation of US citizens and Venezuelan political prisoners: In exchange for the deportees' liberation, Nicolás Maduro's regime freed 10 US citizens detained in Venezuela, considered by the US as "hostages." The agreement also included the liberation of 80 Venezuelan political prisoners, although as of this article's closure (July 19), only 48 releases with precautionary measures have been verified.
3. Context: This exchange resulted from months of negotiations, with two previous frustrated attempts. The agreement was reached after President Bukele's intervention, who had already proposed a similar exchange but was dismissed by Nicolás Maduro. The Trump government and Secretary of State Rubio consider the exchange a diplomatic success, while Maduro presented it as a victory against imperialism. It's interesting to note that the oil issue was left out of this negotiation, for now.
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Analysis of the Exchange

In any event, analysts conclude that the exchange's corollary is that direct contacts and negotiations exist between Caracas and Washington and that possibly the known elements of the exchange do not necessarily close the episode; additional elements could emerge later. The absence, at least publicly, of Richard Grenell was noteworthy, as he only mentions it on his social media as a Trump victory.

This exchange has filled the news in all media. But beyond the natural happiness of those involved, it reveals that the illegal imprisonment of Venezuelans is a tactic not only of internal repression but also of obtaining bargaining chips vis-à-vis the international community. In any case, this exchange does not affect the country's ongoing crisis.

Political and Economic Situation

The political sphere is suffering from lethargy in all senses, including people's interest in voting in next week's municipal elections. Nicolás Maduro has had to offer rewards to popular sectors to incentivize greater presence at voting stations.

Economically, the country is transitioning through a dead end. The policy of forcing public spending reduction and allocating limited oil foreign exchange to importing basic necessities pressures upward the exchange markets, different from the official one, actively sliding the Bolívar's value; the Central Bank of Venezuela's (BCV) official rate fluctuates around 120 Bs/$, pressuring downward Venezuelan purchasing power.

So the economy drifts toward recession due to lack of foreign exchange and official economic policies, while inflation continues upward. The regime's objective, possibly unattainable, is to reduce the economy to the size that meager foreign exchange can finance, a process that will be difficult to control. The process, especially for private investment, is becoming a "every man for himself."

OIL OPERATIONS

According to OPEC secondary sources, Venezuelan production between April and June fell eighteen thousand barrels per day (18 thousand bpd), a slight decline in line with what was forecast since OFAC license expirations became known. The absolute production value reported by OPEC differs from our figures, probably due to secondary sources' inability to account for field diluent and condensate handling that should not be included in the cartel's published numbers.

Crude Production

Crude production during the last week averaged eight hundred forty-six thousand barrels per day (846 thousand bpd), distributed geographically as follows:

Area	Thousand bpd
West	211
East	120
Orinoco Belt	515
TOTAL	846

Refining

National refineries processed 210 thousand bpd of crude and intermediate products, with a yield in gasoline terms of 69 thousand bpd and diesel of 72 thousand bpd.

Upgraders

The PetroPiar (former Chevron) upgrader in José, in the country's east, is operating, and the resulting Hamaca Blend is used as dilution to blend Merey 16 and as refinery feed. The PetroCedeño upgrader continues to obtain intermediate products used as refinery feed. The PetroRoraima (PetroZuata) and PetroMonagas upgraders, also in José, are not operational.

Petrochemical Sector

In the petrochemical sector, methanol plants are operating at an average of 85%, limited by availability, pressure, and natural gas quality from the system. Similarly, Fertinitro maintains one ammonia and urea train operating, and the second is awaiting natural gas supply. Super-Octanos continues out of service. All these plants are in José, in eastern Venezuela.

Exports

July exports align with those of the previous month; at mid-month, they point to an exported crude volume of 540 thousand bpd, entirely destined for China. The weighted price of exported crudes is $34.56/BBL.

[1] International Analyst [2] Nonresident Fellow, Baker Institute

 

FUNDAMENTALS AND GEOPOLITICAL RISK RETURN TO THE DRIVING SEAT

El Taladro Azul

M. Juan Szabo [1] y Luis A. Pacheco [2]

Published  Originally in Spanish in  LA GRAN ALDEA

During the week, the oil market found reasons to resume an upward path. Both fundamentals and political risk were impacted by events that, while not unexpected, had taken on less importance during recent weeks.

Among the first of these events, we can mention the unexpected increase in crude oil inventories in the U.S., the production increase by the eight OPEC+ members, which began to materialize in June, and the return of Ecuador's exports, although without lifting its force majeure declaration.

On the geopolitical risks side, we can highlight the renewed hostile activity of Yemen's Houthi rebels, who not only launched missiles against Israel but also sank two cargo ships in the Red Sea, which increased the oil market's risk perception and drove up freight rates in the region.

In the world economy, the trade war issue returned to the forefront. The effects of delays in tariff notifications to some countries, combined with the application of 50% tariffs on copper, a vital element for manufacturing all advanced technology, shook the markets. During the weekend, President Donald Trump announced that he is imposing 30% tariffs against the European Union and Mexico starting August 1, a measure that could cause a significant dislocation between the United States and two of its largest trading partners.

On the other hand, the imposition of 50% tariffs on exports to the U.S. from Brazil, theoretically for what Americans call the witch hunt against former President Bolsonaro and Lula's inappropriate comments within the BRICS meeting, caused surprise and concern in international media. As if all of the above weren't enough, one must consider Trump's apparent change of stance regarding Putin and the war in Ukraine.

FUNDAMENTALS

OPEC Perspective

OPEC's most recent report, "World Oil Outlook 2025," outlines an optimistic scenario for global oil demand growth. The report indicates that demand will continue to grow and reach 123.0 million barrels per day (MMbpd) by 2050, almost twenty million barrels per day (19.5 MMbpd) more than current demand.

The study foresees that India, Western Asia, the Middle East, and Africa will be the main sources of long-term oil demand growth. Combined demand in these four regions is expected to increase by 22.4 MMbpd between 2024 and 2050, with India alone adding 8.2 MMbpd, becoming the main demand driver.

Likewise, OPEC maintains that Chinese demand growth will slow considerably due to electrification, while developed economies will continue to decrease their oil consumption during the same period.

OPEC+ Strategy

This long-term vision is probably the basis of what, in our opinion, is the cartel's current strategy, accelerating the reopening of capacity by OPEC+'s major producers, with the notable exception of Russia, which is producing at capacity. OPEC+ wants to reconquer markets lost through its role as "swing producer" and be positioned to respond to the future demand increase they project, in stark contrast to International Energy Agency (IEA) forecasts.

The 8 OPEC+ countries leading the gradual elimination of accumulated production cuts—Saudi Arabia, UAE, Iraq, Kazakhstan, Kuwait, Oman, Algeria, and Russia—increased their production by about 360 Mbpd compared to the previous month. Saudi Arabia, the group's de facto leader, increased its production by 130 Mbpd, followed by UAE with 90 Mbpd, Oman with 50 Mbpd, Iraq with 30 Mbpd, and Kazakhstan with 40 Mbpd.

Capacity Expansion

Part of this new strategy is the boasting that several of these countries have been making about their capacity to respond to market needs. For example, the United Arab Emirates (UAE) aims for 5 MMbpd capacity by 2027, and its Energy Minister, Suhail Mohamed al-Mazrouei, told journalists in Vienna that it could increase further after 2027: "We can reach 6 million if the market requires it." Similar statements have come from Saudi Arabia and Kazakhstan.

United States Situation

The U.S. appears, for now, as the Middle East's logical competition for market share, although India and China are out of its reach. The development scheme of American operators, despite having higher investment and operating costs than Persian Gulf countries, seems stable. They maintain relatively constant domestic production despite reductions in the number of active rigs. This is achieved through technological efficiency improvements and financial discipline that keeps shareholders acceptably compensated.

Ecuador Situation

Moving to the southern hemisphere, in Ecuador, Petroecuador maintains the force majeure declaration in its oil operations, although the company has resumed exports through the Trans-Ecuadorian Pipeline System (SOTE) after a temporary suspension. The declaration is maintained to allow the company to act with flexibility in the face of the emergency due to progressive erosion caused by the Coca River and intense rains affecting oil infrastructure. We believe this is an event in full development and will not be completely resolved until alternative pipeline crossings to the current ones are built.

Argentina Situation

In Argentina, the development of Vaca Muerta shale to produce oil and natural gas has progressed satisfactorily and has contributed valuable foreign currency to the country's economy. However, a federal judge in the U.S. decided that YPF, the Argentine state company, had to hand over 51% of its shares to compensate for damages caused by Repsol's expropriation during the Kirchner era. YPF and the Argentine government appealed the verdict, which has generated nervousness in YPF and its private partners.

OPEC Media Decision

In Vienna, OPEC has rejected accreditation for Reuters, Bloomberg, the New York Times, the Financial Times, and the Wall Street Journal for its Vienna meeting this week. The cartel justifies this decision based on how they report the cartel's meetings, which they consider inappropriate. The media point to this decision as an attack on press freedom.

GEOPOLITICS

Houthi Activity in the Red Sea

On Monday, a Liberian-flagged cargo ship was attacked by Houthi rebels with missiles and drones while sailing in the Red Sea. The attacks reportedly killed, injured, or led to the kidnapping of more than 25 Filipino, Greek, and Russian crew members. The ship was abandoned and sank shortly after the attacks. Four people have been confirmed dead. The attack on the Greek bulk carrier Eternity C in the crucial maritime route occurred after the Houthis on Sunday hijacked another Greek bulk carrier, the Magic Seas. The ship was sunk by the Houthis after the attack.

The two attacks, and a round of Israeli airstrikes early Monday morning against the rebels, increased fears of a renewed Houthi campaign against maritime transport and the intensification of Israeli attacks. Israel reports intercepting at least two missiles that originated in Yemen. Despite the ceasefire between Israel and Iran and negotiations to free Israeli hostages and agree to a halt to hostilities in Gaza, the Houthis appear to be the group that Iran has selected to keep hostilities alive. Freight costs in the region skyrocketed, and again threaten a reduction in navigation through the Suez Canal.

Israel and Gaza Situation

Israel has accepted the peace plan suggested by U.S. diplomacy and negotiated with the parties through Qatar and Egypt, although Israel still does not accept the changes demanded by Hamas.

China Situation

Until now, news related to China was limited to its economic difficulties, which were eroding its growth and, therefore, its oil consumption. However, recently, it became known that President Xi Jinping has intensified his crackdown on public officials; the seriousness of the purge seems to indicate that the president has lost confidence even in officials appointed by himself. Some observers speculate that Xi is losing the iron control with which he has administered the communist party and the country.

Xi has failed to revitalize the Chinese economy, and his confrontations with his American counterpart have not generated a trade relationship that promotes Chinese growth, which could be undermining his political base, which until recently seemed solid. Xi disappeared from public view for more than two weeks in late May and early June, something very unusual for a Chinese leader, especially during a very active diplomatic period. When he reappeared, he was reported to look tired and disconnected, generating speculation about his health or political problems.

BRICS Summit

Xi did not attend the BRICS summit from July 6-7 in Rio de Janeiro, despite China considering and promoting that bloc as an important counterweight to Western-dominated institutions like the G7 and the International Monetary Fund.

With the notable absence of the group's most relevant leaders, Xi Jinping and Vladimir Putin, the 17th BRICS summit in Rio de Janeiro concluded. The Rio Declaration underlines BRICS' intention to go beyond an economic coordination platform to become a significant force in global geopolitics. It reaffirms its commitment to a multipolar world order in the face of global conflicts as new, more protectionist trade policies are established, especially by the U.S.

Trump's Tariffs on Brazil

In that sense, and as ratification of BRICS countries' fears, President Trump sent a letter to Lula notifying him of the imposition of 50% tariffs on Brazilian imports to the U.S. The letter argues that the tariffs are a response to the "witch hunt" against former President Jair Bolsonaro, who faces legal charges for an alleged coup attempt. Brazilian authorities announced that "the letter was returned for being offensive and containing falsehoods about Brazil and factual errors about the bilateral trade relationship." This development marks a change in White House policy, using tariffs beyond commercial purposes.

Trump's Change of Stance Toward Putin

The most significant change coming out of the White House corresponds to President Trump's reevaluation of President Putin. Putin's repeated refusals to negotiate a ceasefire in good faith and the increase in attacks on Ukrainian civilian infrastructure after speaking with Trump seem not to have gone over well in Washington. In fact, Trump instructed sending defensive weapons to Ukraine to repel Russian attacks, leaving his defense secretary, Peter Hegseth, in an awkward position, who had suspended it just days before.

PRICE DYNAMICS

Last week, crude oil prices showed slightly bullish but volatile behavior. Geopolitical elements slightly increased risk perception, almost entirely due to renewed Houthi activity in Yemen and delays in agreeing to a halt to hostilities in the Gaza Strip. Surprisingly high crude inventories in the U.S. and an increase in OPEC+ production served to moderate bullish sentiment.

At market close on Friday, July 11, Brent and WTI benchmark crudes were trading at $70.38/bbl and $68.45/bbl, respectively. The week closed with a 3% gain in Brent crude prices.

VENEZUELA

An Equation Without Apparent Solution

Venezuela's current situation is marked by a deep institutional and political crisis. A government whose legitimacy is questioned in the Western world, and which clings to power through repression and police and military control, while the opposition seeks international support and strategies for a democratic transition.

The symptoms of this pernicious crisis are economic fragility and massive migration. In June, according to some sources, about forty thousand Venezuelans crossed the borders of Colombia and Brazil. An extrapolation of this trend indicates that another 700,000 Venezuelans will join the more than 8 million who already make up the migration during this year. This is the largest exodus in Latin America's recent history and one of the world's largest displacement crises.

Economic Crisis and Migration

Economic collapse and migration are not independent phenomena. On the contrary, the second is a product of the first. As Venezuelans' purchasing power drops to levels where they cannot support their families or offer them a future, the attractiveness of emigrating increases, which, far from being a panacea, is sometimes the only way out that Venezuelans see as inevitable.

The reality is that the current political-economic situation has deteriorated considerably with the cancellation of OFAC licenses. The Maduro administration is facing it, under the coordination of Vice President Delcy Rodríguez, with ineffective economic tools. People's remuneration does not increase, and with the collapse of the bolívar's value, their consumption capacity continues to deteriorate.

Restrictive Economic Policies

The reality is that the policies being applied only manage, perhaps by design, to shrink the economy until it becomes compatible with the foreign currency income generated by the battered hydrocarbon production and commercialization activities. Something like not allowing a child's feet to grow to avoid having to buy new shoes.

The partial recovery of 2024, due to the growth of oil activity, is on track to reverse quickly, if there is no political change and country risk remains at current levels. A 5% contraction is estimated for 2025, despite the first quarter having similar growth to 2024.

Fiscal and Exchange Situation

It is clear that public spending is diminishing, dragging consumption down. The foreign exchange market has fewer and fewer available foreign currencies, which impacts replacement costs and imports of goods. To narrow the exchange gap between the official rate and other markets, the Central Bank of Venezuela (BCV) has allowed the official exchange rate to slide rapidly. At the week's close, the rate was approaching 115 Bs./$ pressuring prices and inflation.

Oil Operations

Crude production during the last week averaged 841 Mbpd, distributed geographically as follows:

Production by Area (Mbpd):

• West: 209
• East: 120
• Orinoco Belt: 512
• Total: 841

National refineries processed 206 Mbpd of crude and intermediate products, with a yield in terms of gasoline of 69 Mbpd and diesel of 71 Mbpd.

In the petrochemical sector, methanol plants are operating at an average of 85%, limited by natural gas availability and system pressure. Similarly, Fertinitro operates one ammonia and urea train; the second is awaiting a natural gas supply. Superoctanos continues out of service.

Exports and Prices

Under the oil scheme that will apply for the second half of the year, post-OFAC licenses, the only destination for shipments will be China, with a minor and sporadic exception of a limited-size tanker, monthly, to Cuba. According to our calculations, the weighted price of the week's export basket was $34.0/bbl. Exports in July are in line with those of the previous month, somewhat lagging, but generally recover in the second half of the month.

THE MARKET SEEKS A NEW BALANCE

 El Taladro Azul

M. Juan Szabo [1] y Luis A. Pacheco [2]

Published  Originally in Spanish in  LA GRAN ALDEA

In a week not lacking in events, oil prices initially gained ground in response to Iran's attitude, which, despite having emerged battered from the brief military episode with Israel, maintained its belligerent discourse. The Iranian regime announced the suspension of cooperation with the International Atomic Energy Agency (IAEA) and doubled down on repression against its population to mitigate its current political weakness.

Meanwhile, although it was taken for granted that the advanced OPEC+ meeting during the weekend would approve a new production increase of 411 MBPD, a subgroup of eight cartel countries agreed to the rise of 548 MBPD starting in August. Concern about the feasibility of returning crude oil from the eight OPEC+ countries to the market is partially based on increases of no more than 300 MBPD observed in June, versus the announcements (see attached chart).

Other important events occurred after the early market closure due to the July 4th celebration in the United States. We highlight Ecuador's declaration of "force majeure," which is a strong blow to the Ecuadorian economy and global supply. Also, the approval in the U.S. Congress of the Budget Law, Big Beautiful Bill (BBB), and its subsequent signing by President Trump, with great fanfare, coinciding with Independence Day celebrations, will be a factor to consider. This law empowers the U.S. administration to advance much of its economic/political agenda. The reaction to these events will be reflected in prices during the week. However, many analysts are already starting to warn about the impacts of the growing budget deficit of the northern giant, while others dismiss them as alarmist.

FUNDAMENTALS

OPEC+ Agreement and Production Increase

Although predictable in its trend, the event that captured the oil market's interest had its element of surprise and, if you will, much bluffing. Eight oil-producing countries, OPEC+ members, agreed on Saturday to increase their joint crude production by five hundred forty-eight thousand barrels per day (548 MBPD) starting in August, on their path to dismantling their voluntary supply cuts, or what remains of them.

This cartel subgroup—Saudi Arabia, UAE, Iraq, Kazakhstan, Kuwait, Oman, Algeria, and Russia—agreed, according to a statement from the OPEC Secretariat, to increase their production by one hundred thirty-seven thousand barrels per day (137 MBPD) more than expected from previous announcements (411 MBPD). The statement from Vienna justifies the decision based on: "a stable global economic outlook and the current solid market fundamentals, as reflected in low oil inventories." As we have argued, dismantling cuts will take longer than the organization has indicated. It will require increased investments and opex observed so far only in Kazakhstan, Oman, and the UAE.

Global Strategic Reserves

Part of OPEC+'s view of strong market fundamentals comes from the status of strategic reserves in various countries. While China seems comfortable with its current strategic inventories, India, the world's third-largest crude oil importer, which depends on imports for about 85% of its daily needs, is considering building three new sites to boost its strategic oil reserves. India's underground storage currently holds a total capacity of 39 million barrels, enough for eight days of India's oil consumption, which is still much lower than the figures for the U.S. and China.

Additionally, the North American Strategic Petroleum Reserve (SPR) is uncomfortably low, after the Biden administration used it to try to prevent fuel price increases ahead of the elections. The Trump administration has stated that it is necessary to raise the current stored volume, 402 million barrels, which would only cover about 19 days of consumption.

Situation in Ecuador

On Thursday, Ecuador's state oil company, Petroecuador, declared force majeure over all its operations, including crude exports. This occurred after the suspension of pumping through the two trans-Andean pipelines and a drop in the Andean country's oil production. The state pipelines SOTE (Trans-Ecuadorian Pipeline System) and OCP (Heavy Crude Pipeline) suspended pumping operations preventively to protect their infrastructure from the effects of intense rains, which have accelerated erosion in the Amazonian province of Napo. River flooding has caused damage on numerous occasions since 2020.

Ecuador's crude production dropped to 332,128 barrels per day (331 MBPD) from the 464,634 bpd it recorded on Monday before the incident, according to a report from the Hydrocarbon Regulation and Control Agency. However, during the weekend, production had to be reduced even further, to about 268 MBPD, corresponding to an export reduction of about 200 MBPD.

U.S. Production

Meanwhile, the world's largest producer, the U.S., with its just over 13 MMBPD of crude production, does not tip the balance in any way. Drilling activity continues to fall this week; the Baker Hughes Report shows a drop of eight units, of which five correspond to lower activity in the Permian Basin.

Inventories and Refining

Regarding commercial crude inventories, the EIA reports an increase of 3.8 million barrels; however, this had no effect on oil market perception when it was realized that the increase was due to an import of 7 million additional barrels in the same week. Gasoline inventories increased, and distillate inventories decreased, in a typical seasonal balance and due to higher refining runs that approached 95% utilization of the refining fleet.

Trump's Energy Policy

It's important to mention that Trump's recently approved budget law opens federal lands and waters to oil and gas exploration, ordering 30 public auctions in the Gulf of America (formerly Mexico) in 15 years, and more than 30 each year on federal lands in nine states, giving the industry new access to Alaska. Given the maturation times of these activities, effects could be seen in the medium term, provided there are no changes by new administrations.

The law also lowers the royalties that producers are required to pay the government for extracting oil and gas on federal lands, which should encourage higher production. It remains to be seen whether these incentives, at current prices, can actually change the economic approach of oil companies.

Discovery in Norway

Equinor, the Norwegian state company, announced the discovery of a considerably sized deposit with its exploratory well Drivis Tubåen in the Barents Sea, in the Arctic region. The new discovery is located near the developing Johan Castberg field, facilitating joint development and possibly being a turning point for Norway's oil and gas future. The company states it expects to be able to add 250-550 million barrels of oil reserves.

GEOPOLITICS

Tensions with Iran

Iranian media reported that President Masoud Pezeshkian signed a law allowing him to suspend the country's cooperation with the International Atomic Energy Agency (IAEA). The measure comes amid growing tensions between Tehran and the UN nuclear watchdog agency and follows recent Israeli and American attacks against Iranian nuclear facilities. This position, perhaps inconsistent with the weakening of the country's defensive and offensive capacity, seems to be more oriented toward domestic politics and the military audience, seeking to close ranks against the "common" enemy.

BRICS Summit

The meeting of BRICS countries, composed of ten "emerging" economy countries, is beginning in Rio de Janeiro, but will no longer be the economic "carnival" that Brazilian President Lula da Silva expected. Expectations about the meeting's impact diminished upon learning that neither Xi Jinping nor Vladimir Putin would be present. President Putin limits his travels for obvious reasons: there is an international warrant against him for war crimes. However, the case of Xi Jinping, absent for the first time in 12 years, lends itself to various interpretations. The simplest is that rumors about his health are accurate or that Xi doesn't want to be eclipsed by Indian Prime Minister Narendra Modi, who will be the summit's guest of honor. It's also possible that the Chinese president wants to avoid irritating the volatile U.S. president, who is in the middle of complex trade negotiations with that country. The same applies to several countries that, according to President Trump, will receive letters starting this week indicating the tariffs imposed on their U.S exports.

Other leaders, such as Colombia's Gustavo Petro and Iran's Masoud Pezeshkian, chose not to attend, presumably due to domestic problems. The lack of diplomatic brilliance is a blow to President Lula da Silva, who wants Brazil to play a more important role on the world stage and is thinking about his future candidacy for a fourth term.

Middle East Conflicts

In the Middle East, Israel has continued its anti-Hamas and anti-Hezbollah campaign, finding Hamas enclaves in the south of the Gaza Strip and destroying a Hezbollah missile warehouse in southern Lebanon, around 3,000 devices. White House diplomacy and mediators from Qatar and Egypt say they are close to a ceasefire agreement that would include the release of kidnapped individuals who are still alive in the Gaza Strip.

War in Ukraine

On Russia's part, nothing has changed regarding the invasion of Ukraine, except that its income from hydrocarbon sales is falling sharply, and Putin feels the urgency to gain ground while he can finance it.

Kyiv was, this week, the target of the most significant Russian attack since the invasion began. Russia fired a record 539 drones and 11 missiles. Perhaps it was no coincidence that the attack occurred hours after a call between Trump and Putin, after which Trump said he was "disappointed" that the Russian president was not ready to end the war against Ukraine.

Moscow claims the war will continue as long as necessary to achieve its objectives. For his part, Zelensky urged international allies, particularly the U.S., to increase pressure on Moscow and impose greater sanctions. Later, on Friday, Zelensky and Trump held a phone conversation about the supply of American weapons: in an unusual development, the defense department had paralyzed weapons deliveries to Ukraine.

In the Russian capital, the surprising death of Andrey Badalov, 62, vice president of state-owned Transneft, the company that manages pipeline systems in the country, was announced; it was reported that he fell from the balcony of the apartment where he resided. Badalov's death adds to other deaths of oil executives under mysterious conditions, which is speculated to be an extreme way of maintaining discipline in the government apparatus.

Summary of the Geopolitical Situation

We could summarize the geopolitical situation as follows:

1. The relative pacification of the Middle East is moving in the right direction, and we think it could be used to pressure for more Abraham Accords, especially with Saudi Arabia and Syria.
2. The Russian invasion of Ukraine has no visible end, and its resolution is probably associated with a deep Russian recession.
3. The approval of the "BBB" Law and trade/tariff agreements with China and other countries like Vietnam and India may reduce the unease in capital and energy markets, mitigating the possibility of a global recession, although that remains uncertain.
4. Hydrocarbon supplies and their transport and delivery to users do not seem likely to have disruptions any time soon. – famous last words.
5. 
   

PRICE DYNAMICS

After the oil price dropped in the last week of June, losing the support generated by the geopolitical risk premium, the market began to recover upon observing a defiant Iran. The market also weighed signs indicative of solid fundamentals, particularly relatively low crude inventories.

However, mid-week, the media began to forecast that OPEC+ would approve a substantial increase of at least 411 MBPD starting in August, and that this, added to previous announcements totaling an opening of about 2.0 million barrels per day in just 5 months, would unbalance the market. Thus, prices eroded until the short commercial week stopped the process.

After a 2% gain mid-week, crude prices ended the week with a minimal gain of less than 1%: the Brent and WTI benchmark crudes were trading at $68.3/bbl and $66.5/bbl, respectively.

VENEZUELA

Venezuelan Economy: Recession à la carte

The Maduro administration's economic team, under the leadership of Vice President Delcy Rodríguez, apparently has a clear strategy, which is not so difficult when options become increasingly scarce.

The recipe is the same as in recent weeks: reduce public spending, preserve foreign currency for basic necessities, reduce consumption, keep the banking system cooperating, and let the exchange rate slide to try to reduce the gap with the alternative market. The only new thing is introducing cryptocurrency use, specifically USDT or Tether, a cryptocurrency backed mainly by dollars in a 1:1 ratio, which would facilitate obtaining and allocating foreign currency. The official exchange rate has surpassed 111 Bs./$, but has not ostensibly stopped the exchange gap.

The strategy seems to aim to provoke a recession by shrinking the economy to the level that oil-generated foreign currency and other sources can handle with minimal monetary financing, trying to prevent inflation from getting out of control, as it is at this moment. Despite no official publications, private sources calculate that annualized inflation is already approaching 200%.

Diplomatic Relations with the United States

As we reported last week, the Maduro administration appears to continue conversing with White House representatives, probably Richard Grenell. It is mentioned that Venezuela asked the U.S. to return 18 children separated from their families in deportation processes, who have become a propaganda weapon. In parallel, a group of American congressmen requested that Secretary of State Marco Rubio secure the release of 10 U.S. citizens unjustly detained in Venezuela. With the backdrop of continuous flights of deported Venezuelans arriving weekly at Maiquetía, it would seem that a bargaining between both parties, or perhaps something more, could occur, which would undoubtedly favor the regime.

However, the diplomatic waters separating the parties have become murky due to a series of unrelated factors: the declaration as "persona non grata" of the UN High Commissioner for Human Rights, Volker Türk, demanding his withdrawal from Venezuela, in response to the publishing of a devastating report on the deterioration of human rights in Venezuela, documenting torture, forced disappearances, and political repression; the political support given by the regime to Iran after the American bombing; the inauguration, perhaps only symbolic, of the Russian factory for Kalashnikov rifle ammunition; and the capture at sea of several drug shipments originating in Venezuela.

Political Situation

Politically, it is striking that several members of UNT, the party of former governor Rosales, and of Union y Cambio, the party of former governor Capriles, left that "opposition" tent and appeared as candidates for the official party, PSUV, in municipal elections, confirming the opportunism of that opposition of convenience.

Oil Operations

In oil matters, things are simplified, which does not necessarily mean improvement. Practically, there is only one export destination: "all shipping leads to China", and one price: $31.7/bbl - based on our internal calculations. Crude production was slightly affected, but the Cardón refinery and the PetroPiar upgrader were started, although the latter could not be fully stabilized.

As we have been announcing, June is a crucial month for oil operations in the year’s second half.

Production by Regions

Crude production during the last week averaged eight hundred thirty-nine thousand barrels per day (839 MBPD), geographically distributed as follows:

Area	MBPD
West	209
East	120
Orinoco Belt	510
TOTAL	839

Refining and Petrochemicals

National refineries processed 193 MBPD of crude and intermediate products, with a yield of 65 MBPD in gasoline and 68 MBPD in diesel. There was talk of a fire at the Amuay refinery, but the characteristics and seriousness of the event could not be verified.

Methanol plants are operating in the petrochemical sector. At Fertinitro, one ammonia and urea train is operating, and the second is in startup preparations, while the Superoctanos plant is out of service. The pressure of gas supplied to the José complex remains low, partially affecting plant performance.

Exports

June exports closed with crude exports of 590 MBPD sent entirely to China through the traditional mechanisms for transporting crude sanctioned by OFAC: 483 MBPD correspond to Merey-16 shipments, 90 MBPD to Boscán crude, and 17 MBPD from Corocoro segregation.

Also exported were 76 MBPD of products, mainly residual fuel, all sent to the Far East, except for a minor shipment to Cuba.

CITGO

In the state of Delaware, the special master supervising the auction of shares of PDV Holdings, indirect parent company of CITGO Petroleum, recommended the $7.38 billion offer from a unit of Gold Reserve (GRZ.V), a mining company listed in Toronto, as the preliminary winner of the auction organized to pay creditors for debt defaults and expropriations by the Hugo Chávez and Nicolás Maduro administrations.

If the offer is approved, the proceeds from the PDV Holding auction would be sufficient to compensate 11 of the 15 creditors on the court-approved list. In any case, some experts expect the process to encounter new arguments to resolve, including those that CITGO and PDVH lawyers continue to raise. New offers or appeals from creditors who would not benefit from the special master's recommendation are not ruled out.

 

[1] International Analyst [2] Nonresident Fellow, Baker Institute

THE CALM AFTER THE STORM

 El Taladro Azul

M. Juan Szabo [1] y Luis A. Pacheco [2]

Published  Originally in Spanish in  LA GRAN ALDEA

THE CALM AFTER THE STORM

In a region that has historically been the catalyst for more than one oil crisis, the market looked at a new one that, for the moment, seems to have taken a step back. Both Israel and Iran have avoided damaging the region's oil facilities, at least for now. The much-analyzed threat of a closure of the Strait of Hormuz, which would be an event that would shake the markets, does not seem to be on the table today, as it does not favor either party. On one hand, Iran needs to preserve its oil exports to avoid further deteriorating its economy, already hit by economic sanctions. On the other hand, the U.S. and Israel are trying to prevent a major accident that would break the oil supply chain, which would be reflected in a price escalation. This would affect the unstable world economy and destabilize Trump's fundamental policy of keeping energy prices low as protection against inflation and paving the way to reduce the service of American debt.

A short-duration escalation

The U.S. attack on nuclear facilities in Iran raised alarm signals in the market. However, that perception of risk was diluted when Iran's retaliation materialized as a modest attack on an American base in Qatar, which was previously announced. The 14 missiles launched were seen more as a symbolic response, and the parties were not seeking to damage the vital oil infrastructures of the region. In this way, geopolitical risk evaporated with the same speed that it had emerged, and oil prices fell to the levels before the start of the attacks on Iran's nuclear facilities by Israel.

Market focus shift

The oil market then turned to expectations of lower oil demand growth due to the global economic slowdown and the announcement of increased supply by OPEC+. However, we believe that both the predictions of lower demand and the announcements of greater supply by OPEC+ lack the certainty that the market has assigned to them.

FUNDAMENTALS

Demand and supply indicators

Demand and supply figures give indications of growing demand. The increase in oil purchases suggests greater demand, as is the case in Japan, China, and the U.S., and so does the reduction of inventories. On the supply side, the production opening announced by OPEC+ is falling short, and U.S. oil production is on a plateau, pointing to a potential deficit. Despite these signals, the market returned to the same price levels as before the Israeli bombing, considering that the strength of the fundamentals is ephemeral, or perhaps as an over-correction.

U.S. production

Indeed, U.S. production is stable at just over 13 million barrels per day (13 MMbpd), with indications of decline due to low replacement effort. According to Baker Hughes' weekly report, drilling activity was reduced by seven units, five onshore and two offshore. According to our estimates, the number of crews performing hydraulic fracturing has remained relatively constant due to the greater use of "refracturing," an operation used to extend the useful life (final recovery) of shale oil wells.

Crude inventories

Similarly, the Energy Information Agency (EIA) in its weekly report highlighted a reduction of 5.8 million barrels in commercial crude inventories in the U.S., despite having imported 3.1 million more barrels of crude than the previous week. This is the second consecutive material reduction in as many weeks and seems to indicate a trend, especially if we consider that during this period, there has been a delay in the scheduled replenishment of the Strategic Reserve (SPR) of around 7 million barrels. The current inventory level is lower than the lower limit of the 5-year range. On the other hand, gasoline inventories also decreased by 2.1 million barrels, despite the increase in refinery runs.

OPEC+ production

Unofficial sources revealed that OPEC+ would be about to agree on another increase of 411,000 barrels per day of production for August; with that increase, the total increase announced this year would reach 1.8 million barrels per day. However, the cartel has not yet materialized the announced production volumes because some members compensate for previous overproduction, and others need more time to materialize the opening. The reality points to the fact that the production capacity, theoretically closed, is not as available as announced. On the contrary, those barrels require time and investment to restore them to their original state. We estimate that by the end of the year, the incremental production from OPEC+ countries will not even reach half of the announced volumes.

GEOPOLITICS

Reduced risk in the Middle East

The probability that warlike events, particularly in the Middle East, will derail the normal functioning of the hydrocarbon industry has been considerably reduced. Just a few days ago, the bombings and reprisals between Israel and Iran, added to the U.S. intervention in the conflict, brought the risk premium to high levels, reflected in oil prices that pointed to $80/bbl in terms of Brent crude. However, the ceasefire between Israel and Iran, achieved through the mediation of the U.S. and Qatar, and the absence of subsequent reprisals, have essentially diluted the geopolitical risk premiums and a return of prices to pre-12-day war levels.

Weakening of Iranian power

The relative calm in the region and the apparent ease with which a ceasefire was achieved have their justification in some regional developments shaping the current balance of powers in the Middle East. Iran's economic and military power has diminished considerably, this being the reason for its poor response to Israeli and American attacks. However, its internal propaganda tries to convince its population that they defended themselves successfully and forced the enemy's surrender with their missile superiority.

The reality seems to be that the elimination of the leaders of the Revolutionary Guard and a portion of the scientists who managed Iran's nuclear program, as well as the near elimination of its anti-aircraft defense and the significant damage to its nuclear and missile infrastructure, undermined, at least for now, its regional power.

Weakness of Iranian allies

Iran's regional power had already been weakened with the overthrow of Bashar al-Assad in Syria, its great regional partner, and the considerable weakening of its terrorist tentacles distributed throughout the region. The most notable case is that of the terrorist group Hamas. Without commanders, deprived of much of its tunnel network and uncertain of the support of its main ally and supplier, the group is struggling to survive in Gaza against rebel local clans and relentless Israeli military pressure.

Hezbollah, in Lebanon, has also been decimated, and in the case of the Houthis in Yemen, the situation is not so clear. The confrontations with Saudi Arabia, the repeated attacks by the U.S., the United Kingdom, and Israel, and the reduced support from Iran have severely reduced their ability to keep ships from navigating the Red Sea.

Opportunity for the Abraham Accords

This regional situation seems conducive to the U.S. insisting on progressing with the Abraham Accords, especially between Saudi Arabia and Israel. After all, the Israeli initiative against Iran has enormously benefited the Arab countries of the Persian Gulf.

Russia-Ukraine conflict

On the Russia and Ukraine front, violence shows no signs of abating, as international peace efforts led by the U.S. have not produced any progress to date. Two recent rounds of talks between the Russian and Ukrainian delegations in Istanbul were brief and did not lead to progress toward reaching an agreement.

Long-range drone attacks have been a hallmark of that war. The race by both sides to develop increasingly sophisticated and deadly drones has turned the conflict into a testing ground for new weapons. Russian forces have been slowly advancing at some points on the ground battle front line. However, their incremental advances have been costly in terms of troop casualties and loss of military equipment. The new attacks follow comments by President Putin on Friday that Moscow is ready for a new round of direct peace talks in Istanbul. Meanwhile, Ukrainian President Volodymyr Zelensky was attending the NATO summit in The Hague, seeking to secure the support of that bloc.

Russian economic crisis

The real headache for the president of the Russian Federation is the deterioration of the economy. Although Putin tried to give a positive message in his intervention at the 2025 St. Petersburg International Economic Forum, in the corridors, the conversations centered on an imminent banking crisis due to high inflation; attempts to control with very high interest rates have triggered delinquency. The bulky budgets to finance the war, and the limited income from hydrocarbon sales due to sanctions, make up a toxic recipe for the Russian economy.

U.S.-China relations

According to Treasury Secretary Scott Bessent, the U.S. and China appear to have settled their differences regarding shipments of rare earth minerals and magnets to the U.S.. This resolves a dispute that stalled a trade agreement reached in May. China had suspended exports of a wide range of critical minerals and magnets, disrupting supply chains central to automakers, aerospace manufacturers, semiconductor companies, and military contractors worldwide. Capital markets received the announcement well, which extended their gains and almost completely recovered the drop experienced at the beginning of the year.

U.S. fiscal policy

Additionally, in the U.S., the approval process for the budget law proposed by Trump and approved by the House of Representatives in May faces challenges to be approved in the Senate at the speed that the president would like. The Senate approved the opening of the debate on the bill, which contemplates about 4 trillion dollars in tax cuts, on Saturday after convincing some Republicans who questioned the initiative. With 51 votes in favor and 49 against, the Senate endorsed opening the formal debate on the plan, which causes controversy because it expands the tax cuts from Trump's first term (2017-2021), increases spending on defense and immigration control, and reduces assistance programs such as Medicaid and food stamps.

PRICE DYNAMICS

Focus on fundamentals

After diluting the geopolitical risk premium in oil prices, the oil market focused on the global growth rate and its effect on oil demand, adding the production increase announcements made by OPEC+. At least for now, it does not factor in the resilience of demand and delays in the materialization of supply, both from countries in the OPEC sphere and non-OPEC countries.

Upcoming key events

Now that the Middle East is relatively quiet, some key events are coming that will be reflected in prices: the OPEC+ meeting on July 6, the deadline for Trump's tariff war, and the approval of the budget law in the U.S. Senate. Surveys conducted by Reuters of options traders foresee a 60% probability that a barrel of Brent will average between 60 and 70 USD in the next three months.

Weekly close

Prices closed the week with a substantial loss of almost 12% compared to the previous week. Thus, at market close on Friday, June 27, the Brent and WTI benchmark crudes were trading at $67.77/bbl and $65.52/bbl, respectively.

VENEZUELA

Economic myopia

The Venezuelan regime is focused on implementing its economic model to face U.S. economic sanctions while promoting municipal elections to finish taking over political spaces at all levels. However, the municipalities will not significantly impact the effort to rescue the economy.

Structural political crisis

The situation in Venezuela continues to be marked by a profound structural crisis, both politically and economically. Politically, the Maduro administration faces accelerated decline. As a result of the handling of elections in general, particularly the presidential elections of July 2024, the regime has lost national and international legitimacy and is dealing with internal fractures and diplomatic isolation. The political opposition, particularly that led by Edmundo González and María Corina Machado, has strong popular support, estimated at more than 70%. Still, its performance continues to be hampered by the policy of repression and fear that has gone so far as to prohibit speaking or publishing information that is not to the regime's liking.

International pressure and maximum pressure policy

The U.S. and other international actors have intensified their pressure, calling the regime a regional threat, and have questioned the validity of the presidential and regional elections. The Trump administration has applied the maximum pressure policy and cut the umbilical cord that fed the country with foreign currency from oil sales to the American market. The incremental oil activity, licensed by the Biden administration, had helped the economy show signs of recovery during 2024, but from early 2025, a new contraction is forecast.

Current economic situation

The regime has reduced public spending to survive this contracting economy, impacting consumption. Even so, foreign currency income has had to be supplemented with monetary financing from the BCV. The exchange rate continues to weaken: at the week's economic activities close, the official rate exceeded Bs 107/$, while the "unnameable," according to international portals, is around Bs 146 Bs./$. Annualized inflation, estimated by independent analysts, is in the order of 200%.

Ineffectiveness of anti-sanctions measures

The regime's anti-sanctions measures have been the equivalent of band-aids. The productive participation contracts (CPP) have not shown significant results, and oil exports, concentrated towards China, generate income at a discount relative to the market price, and with collection problems.

Hopes for negotiation

In any event, the Maduro administration has not lost hope of achieving political results that help this critical situation, through negotiations with the White House. As is logical, they think that developments in the Middle East provide an opportunity, and they have undoubtedly noted what appears to be an internal struggle between MAGA forces and their opponents within the Trump administration.

The mention that China could continue buying Iranian crude, that contacts between the U.S. and Iran were reestablished after the ceasefire, and Secretary of State Marco Rubio's hesitant position on imposing incremental sanctions on Russia are positive signals for the Venezuelan regime, which maintains the flow of deported emigrants in the hope of achieving more openness in the maximum-pressure siege.

OIL OPERATIONS

Results under maximum pressure

At the close of the first month under the sanctions of the Trump administration's maximum pressure policy, oil results align with most of the predictions aired when the end of the OFAC licensing era was known. The short duration of elevated prices due to the war ended the hope of obtaining higher oil revenues.

Crude production

Crude production during the last week averaged 843 MBPD, relatively unchanged, distributed geographically as follows, in MBPD:

Area	Mbpd
West	211
East	120
Orinoco Belt	512
TOTAL	843

National refining

The shutdown of the Cardón refinery (electrical blackout) and the PetroPiar upgrader (furnace fire) have affected June's operational results. National refineries processed 166 MBPD of crude and intermediate products, with a yield in terms of gasoline of 57 MBPD and diesel of 63 MBPD.

Petrochemical sector

In the petrochemical sector, the methanol plants are operating. At Fertinitro, an ammonia and urea train is operating, and Super-Octanos is out of service; however, the pressure of the gas supplied to the complex was reduced, partially affecting the plants' results.

Exports

Exports in June appear to point to about 570 MBPD. Nine crude tankers were dispatched in the first 26 days, and at least three more are expected to dock and load before the end of the month.

CITGO

Auction process

In Houston, it was announced that Black Lion Citgo Group, a consortium led by private equity firm Black Lion Capital Advisors, had submitted an offer of $8 billion (in cash), as part of the auction of shares of PDVSA Holding (CITGO's parent company) ordered by the Delaware court. This is an additional step in this process that began more than five years ago due to debts incurred during the Chávez and Maduro administrations. Legal experts still forecast a long and winding road before the auction materializes, despite this latest offer at least reflecting the asset’s potential value a little better.

Favorable decision in New York

In New York, a court decided in favor of PDVSA and PDV Holdings in an alter ego case sued by a vulture fund. Although this decision does not influence what has already been judged in Delaware, it is a favorable precedent for future cases.

[1]: International Analyst [2]: Nonresident Fellow, Baker Institute