M. Juan Szabo [1] y Luis A. Pacheco [2]
Published Originally in Spanish in LA GRAN ALDEA
GEOPOLITICS AND MARKET SENTIMENT WEAKEN OIL PRICES
During this week, the oil market experienced the impact of four relevant factors:
1. Reduced geopolitical risk: The possibility that the agreement proposed by President Trump for the Middle East may be sustainable reduces geopolitical risk.
2. Supply and demand dynamics are determined by weak forecasts and OPEC+ production opening announcements, although the cartel continues to face difficulties placing physical barrels in the market.
3. Trade tensions: Tensions have increased in the trade war between the United States and China, resulting from the Chinese imposition of export controls related primarily to rare earths.
4. Crude inventories: The moderate increase in crude inventories in the United States, although perfectly justified, was the fourth element contributing to the decline in oil prices.
The oil price retreat, even if temporary, hits the economies of producing countries hard, particularly Russia, and its ability to continue financing the war with Ukraine. Economic pressures are increasingly intense on the immutable Putin, while consuming countries rub their hands.
Additionally, the market closely observes various political events: the internal conflict regarding budget approval in the United States, which keeps the administration partially paralyzed; the removal of Peru's president, Dina Boluarte, following a unanimous censure motion; President Macron's difficulty in forming a stable government in France; and the complex diplomatic situation between the United States, Venezuela, and Colombia.
GEOPOLITICS
Israel-Hamas Agreement
Without a doubt, the most important event of the week has been the signing of phase one of an agreement to end the more than two-year war between Israel and Hamas, which represented a clear and positive advance. However, unresolved issues (such as Hamas's disarmament and its role in the territory's future) will preserve a degree of uncertainty about the associated geopolitical risk. The problem that most divides the parties is the creation of a Palestinian state, and the current agreement is far from outlining a sustainable solution.
In any case, and vital for the civilian population of the strip, a ceasefire in the Palestinian territory went into effect at 12:00 p.m. local time on Friday, and the Israeli army has begun to withdraw from parts of the Strip toward a defined line, after the Israeli cabinet approved the first phase of the agreement. Seeing Hamas members parade uniformed, hooded, and armed through Gaza, just left behind by Israeli forces on screens, is evidence of how complex the path is to achieve sustainable peace.
This Monday, in compliance with the first phase of Trump's agreement, the release of the 20 Israeli hostages known to be still alive was carried out, and the delivery of the bodies of deceased hostages began. For its part, Israel started the release of about 250 Palestinian prisoners and 1,700 Gaza detainees. An increase in the entry of humanitarian aid to the Strip has also begun to be evident.
A multinational task force in Israel, known as a civil-military coordination center, is being formed through the U.S. military, which will include troops from the U.S. (who would not enter Gaza), Egypt, Qatar, Turkey, and the United Arab Emirates, to oversee the ceasefire. Assuming the exchange of hostages and prisoners is completed, the intention is to build a so-called International Stabilization Force, but this must still be agreed upon between the parties.
War context
To try to understand what happened in these years of war, we must remember that what started the war was the surprise attack that Israel suffered in October 2022, in which more than 1,200 Jews were massacred and Hamas terrorists took hundreds hostage. Israeli military intelligence has still not given coherent explanations for why it could not detect what ended up being the most serious attack against Jews since the Holocaust.
Prime Minister Netanyahu, amid the surprise and gravity of the events, promised that Israel's response would "change the Middle East." During the following two years, against all odds, including dissent in his own country and international criticism and sanctions, Netanyahu used Israeli military capacity and intelligence (Mossad) to decimate Hezbollah in Lebanon and Houthi leaders in Yemen. His actions also contributed to the overthrow of Bashar al-Assad in Syria. While Israel defended itself from air attacks from Iran, it carried out unprecedented attacks against the financial center and brain of regional terrorism, Tehran, which severely weakened it.
The greatest effort of the Israeli defense forces was dedicated to pursuing and trying to annihilate Hamas in its lair, the Gaza Strip. The terrorist group, reduced and battered, took refuge in an impressive network of tunnels and used civilians as human shields. The war, in addition to the initial Israeli victims, has claimed tens of thousands of Palestinian lives and caused countless material damages.
The weakening of jihadist/terrorist groups, amid pressure and accusations against Netanyahu and Israel, which reignited global anti-Semitism, created a fertile scenario for the Trump White House's influence to force the parties, including Arab countries, to make a substantial change in their positions and that the search for a diplomatic agreement with credible and feared guarantors was the best solution to the military violence of the last two years.
If lasting peace is achieved in Gaza that includes the Palestinian Authority and excludes Hamas, with a government supervised by Arab countries, the regional repercussions would be enormous, and its reverberations would be felt around the world, including in oil demand.
Russia-Ukraine Conflict
The confrontation situation between Russia and Ukraine has not changed much; Russia continues with its drone and missile attacks, lashing Ukrainian territory and population. The most recent attack wreaked havoc on the capital, Kyiv's, electrical supply system. Meanwhile, Ukrainians have concentrated on attacking Russian energy infrastructure; in October, more than a dozen attacks on Russian refineries and pipelines were recorded. President Trump is beginning to lean toward the Ukrainian cause and is about to authorize the use of long-range missiles by Ukraine. The European Union (EU) and NATO are structuring a network of aid to Ukraine that could include deliveries of part of the Russian funds frozen in the European financial system.
However, diplomatic initiatives are not entirely ruled out. Kremlin adviser, Yuri Ushakov, said Thursday that Russia and the United States' efforts to end the conflict in Ukraine remain in force, the TASS state news agency reported. This contradicts Russia's Deputy Foreign Minister Sergey Ryabkov, who declared the "powerful momentum" for peace talks since August had been lost. In any case, Ukrainian President Volodymyr Zelensky has said he does not believe in President Putin's good intentions.
Currently, after 1,327 days of conflict, Russia's initial territorial objectives have not yet been achieved, and the morale of the Ukrainian population remains firm despite the trench warfare and continuous attacks on their cities. The confrontation is at a stalemate and is generating, particularly in Russia, considerable resource consumption in a significantly weakened economy. Indeed, for Putin, the situation is becoming economically increasingly unsustainable, since, in addition to the adverse effect on his oil infrastructure from Ukrainian attacks, low oil prices and the increasing costs of circumventing sanctions considerably reduce his income.
Political Crisis in the United States
In the U.S., the partial federal government shutdown has entered its second week without a clear path to resolution. Both houses of Congress remain mired in disputes over health policies as the October 15 military pay deadline approaches, creating significant political and market pressure. It is reported that President Trump has ordered his Secretary of Defense to pay military salaries as due.
Senate negotiations remain stalled, with no additional vote until October 14. Democrats continue to demand a permanent extension of tax credits for Affordable Care Act premiums (Obamacare) and reversal of Medicaid cuts before supporting any budget approval. The political dynamics have been further complicated by Senate Minority Leader Chuck Schumer's (Democrat from New York) comment that the shutdown helps them politically "more every day," which Republicans have interpreted as proof that Democrats are willing to prolong.
U.S.-China Trade Tensions
Trade relations with China are also going through a rocky stretch. On Thursday, China announced new restrictions on exports of rare earths and related technologies, expanding controls on the use of these critical elements for many high-tech and military products. This is before a meeting in approximately three weeks between the U.S. president and Chinese leader Xi Jinping.
The regulations announced by the Chinese Ministry of Commerce require foreign companies to obtain special permission to export items containing even small traces of rare earth elements from China. These essential minerals are used in various products, from jet engines, radar systems, and electric vehicles to consumer electronics such as laptops and cell phones. China controls 70% of the production and 90% of the processing of this raw material.
President Trump announced this Friday that, in response to the "extraordinarily aggressive" controls the Asian giant announced on its exports, the United States will impose 100% supplementary tariffs on China starting November 1. Trump added in his Truth Social network that the United States will also impose its own controls on exports of strategically important software beginning November 1. The president has suggested that the meeting with Xi could be cancelled.
This situation could be part of a tough trade negotiation strategy. Still, the oil market interpreted it as a threat to demand, sowing even more uncertainty in the global economy.
FUNDAMENTALS
During the week, fundamentals could do nothing to prevent the near panic in oil markets. First, the [Energy Information Administration] (EIA) reported an increase in commercial crude inventories of 3.7 million barrels (3.7 MMbbls). The market reacted to the number without factoring into its analysis that during the week, 4.0 MMbbls more had been imported than the previous week and that gasoline and distillate inventories had fallen more than 3.6 MMbbls during the same period.
In any case, the U.S. remains in a kind of oil lethargy. The marginal decline in shale oil and gas basins is offset by higher offshore production in the Gulf of America (formerly Gulf of Mexico), where several fields are at the start of their development phase or satellite production increase.
According to [Baker Hughes], rig activity has fallen by two units; however, these are four rigs dedicated to oil, as those dedicated to gas increased by two units. Similarly, the slight increase reported corresponded entirely to natural gas drilling in Canada.
South America on the global energy map
On the other hand, South America is beginning to recover a more prominent role on the global energy map, with Bloomberg projecting that the region will cover more than one-third of world oil demand growth through 2030. After years of decline due to Venezuela's crisis and the pandemic, activity in other countries places Latin America again in positions of importance in terms of contributions to global supply, despite setbacks in Colombia, Mexico, and Ecuador. Brazil, Guyana, and Argentina set the pace.
Brazil consolidated as the region's largest producer with the development of "Presalt" discoveries and has reached production of 3.8 million barrels per day (3.8 MMbpd). In Guyana, projects in the Stabroek block, operated by ExxonMobil, show impressive vitality, producing 830 Mbpd and on track to reach one million barrels per day. In Argentina, the dynamism of the Vaca Muerta basin drives growth: it currently produces 825 Mbpd, an Argentine record for the 21st century.
In contrast, Mexico maintains its production around 1.5 million barrels per day (1.5 Mbpd) after a sustained decline. Venezuela remains below 0.9 MMbpd, despite a slight recovery during the OFAC license period. Colombia, which previously provided stability, fell to 0.7 MMbpd. Examples of how bad policy can outweigh natural resources.
Exploration is also accelerating in Suriname, which shares a geological basin with Guyana. The region's relative institutional stability and low geopolitical risk reinforce its attractiveness compared to other producing areas.
OPEC+ and market forecasts
Finally, OPEC+ continues announcing accelerated production openings while trying to generate production potential to make true its announcements, which it has not yet achieved.
Most forecasts and analysts, except OPEC, announce supply surpluses for the remainder of the year and in 2026, based on strong supply growth and demand growth of about half of what it had been in recent years.
Those analyses also mention an increase in tanker inventories in transit and floating inventory as an argument for overproduction. However, as we mentioned last week, this phenomenon is due to increased navigation time and the detours used to deliver sanctioned crude to customers rather than overproduction.
We do not share this vision and have revised our projections, concluding that supply growth will exceed the IEA's forecast and reach a balance with OPEC's forecast toward the end of 2026.
PRICE BEHAVIOR
At the first opportunity, the ceasefire agreement between Israel and Gaza reduced geopolitical risk premiums in oil futures and led to a nearly 3% weekly decline in crude prices. Likewise, the evident escalation of tensions between China and the U.S. is also not boosting crude, and everything points to an impact on world trade in 2026 if the current pace of sanctions and reciprocal tariffs is not moderated.
Thus, at the close of markets on Friday, October 3, the benchmark crudes, Brent and WTI, were trading at $62.73/bbl and $58.90/bbl, respectively.
VENEZUELA
The Nobel Peace Prize irritates the not-so-peaceful
For Venezuela, the event of the week was the surprising but well-deserved award received by Venezuelan opposition leader María Corina Machado (MCM): the 2025 Nobel Peace Prize. The significance of the news has been such that it has polarized not only Venezuela but the world in general. Particularly noteworthy was that neither King Felipe VI nor President Sánchez of Spain congratulated MCM. Others, ideologically opposed to MCM, such as President Petro and President Sheinbaum, diminished the value of the award. To date, the Venezuelan regime has said little, while MCM's political enemies are busy attacking her.
In a bizarre episode, the White House criticized that the prize had not been given to President Trump. MCM moved quickly to neutralize the potential crisis and communicated with the U.S. president to thank him for supporting Venezuela.
In any event, as the award text reads: "The committee has decided to award the 2025 Nobel Peace Prize to María Corina Machado for her tireless work in promoting democratic rights for the people of Venezuela and for her struggle to achieve a just and peaceful transition from dictatorship to democracy." A firm declaration of political support for the country's democratic opposition.
Tensions with the United States
The conflict between the Trump administration and drug cartels, particularly the Cartel of the Suns, has become more serious. Trump announced that diplomatic contacts with Venezuela had been suspended, in apparent reference to contacts between Jorge Rodríguez, Venezuela’s chief negotiator, and special envoy Richard Grenell. At the same time, various sources reported the presence of U.S. forces in Trinidad, and it became known that the U.S. requested the island republic of Grenada to install radar equipment and military personnel on its territory.
The U.S. Senate rejected an initiative on Wednesday to halt the military campaign initiated by President Donald Trump in Caribbean waters, which seeks, in principle, to stop drug trafficking to his country. The initiative, led by Democratic Senator Adam Schiff of California and co-sponsored by his party's Senators Tim Kaine of Virginia, Ron Wyden of Oregon, and Vermont independent Bernie Sanders, was defeated 48 votes in favor and 51 votes against. It remains unclear what the military board is on which the U.S. is moving its pieces, nor what its preferred gambit is: negotiation or intervention.
Maduro and his associates, sensing the imminence of a negative outcome from the tense situation, have sent letters to different international authorities to intervene in favor of resolving differences through diplomatic channels. The letters were sent to President Trump, Pope Leo XIV, the UN Security Council, Guterres, and the UN Secretary General, among others. In the country, Russian anti-aircraft missiles and other military equipment continued to be deployed in high-visibility sites, and military exercises were carried out in La Guaira and Valencia.
Economic Situation
The Venezuelan economy continues in intensive care, trying to control a runaway exchange market. The official rate approaches 195 Bs./$, but the injection of foreign currency into that market continues to decrease in favor of currencies used at higher exchange rates to reduce the gap between the official and other alternative markets. The gap has been reduced to around 55%, and in the alternative market, U.S. currency trades are above 300 Bs./$. The combination of monetary financing and continuous devaluation incentivizes dollarization of the economy, reduces consumption, and pushes inflation to dangerous levels.
Oil Operations
The self-elevating rig (Jack Up) Alula remains docked at the Lagunillas Pier, on the eastern coast of Lake Maracaibo. It is being rigged up for activities, probably in the Lagocinco Block, but without a specific start date.
Oil operations in the country were modestly affected by failures in electrical supply. Shipments of heavy naphtha from Russia were received.
Crude production during the last week averaged 860 Mbpd, geographically distributed as follows, in Mbpd:
· West: 224 (Chevron: 109)
· East: 119
· Orinoco Belt: 517 (Chevron: 123)
· TOTAL: 860 (Chevron: 232)
National refineries processed 235 Mbpd of crude and intermediate products, with a yield in terms of gasoline of 77 Mbpd and diesel of 78 Mbpd.
In the petrochemical sector, Fertinitro's train No. 1 was restarted, while train No. 2 continues in maintenance. One of Metor's plants is out of service due to a lack of natural gas, and the other, like in Supermetanol, operates normally. SuperOctanos continues out of service.
During the first ten days of the month, crude exports totaled 6.4 million barrels, similar to the beginning of September. Two shipments were destined for the U.S. market, about 850 thousand barrels.
We estimate that the weighted price of exported crudes is $31.1/bbl.
North Paria Gas
Trinidad's attorney general announced on Thursday that the U.S. government has given multinational Shell and Trinidad and Tobago permission to develop an offshore natural gas field near the maritime border in Venezuela (Dragon Field north of the Paria Peninsula).
In recent years, the project to supply Venezuelan natural gas to Trinidad has progressed slowly, due to frequent changes in U.S. policy toward Venezuela. Venezuela has remained under U.S. energy sanctions since 2019. The Venezuelan regime has not declared on this latest license how it would affect the agreements it had already negotiated with Trinidad.
[1]: International Analyst
[2]: Nonresident Fellow Baker Institute
