WEEKLY OIL REPORT
Week of 27 July – 3 August 2020

PRICE

For the fifth consecutive week, oil prices continue to show the stability achieved since the implementation of OPEC+ cuts in May, maintaining a price above $40 per barrel since the first week of June.

OIL PRICES
(MARCH-AUGUST 2020)

At the close of the European markets¹ on Friday, July 31^st, Brent and WTI were quoted at $43.14 and $40.04 a barrel, respectively, a recovery of 61% and 102% from the prices recorded in May 2020.

While today, Monday, August 3^rd, the markets in Europe closed² with the Brent and WTI trading at $43.46 and $40.16 per barrel, respectively, a variation of only 0.7% and 0.30% of the markers with respect to the closing on Friday, July 31^st, which seems to indicate the new level of production due to the relaxation of the OPEC+ cuts, which came into effect on August 1^st, have not had a major impact on the price of oil.

BRENT PRICE
(May-August 2020)

Both markers fluctuated downwards at the end of the week due to the new COVID-19 outbreaks in the U.S. and Europe, as well as to the downturn of the U.S. economy by 33%, the worst since the 1940s.

On Thursday 30^th, the Brent fell to $42 a barrel, while the WTI plummeted on Thursday 30^th and Friday the 31^st to values of $39.75 and $40.04 a barrel, and then closed at $40.27 a barrel.

WTI PRICE
(May-August 2020)

On Thursday, July 30^th, the OPEC basket was quoted³ at $43.40 a barrel, a 134% recovery from May prices.

BASKET PRICE OPEP
(May-July 2020)

Since the OPEC+ cuts came into effect in May⁴, prices on all markers have recovered the losses experienced during March and April, reaching the $40 per barrel threshold at the beginning of June. The price of the markers has remained stable, with small fluctuations and a base value of $40 per barrel. It appears that the effect of production cuts and the reduction of overproduction in the market have managed to place the price in a range that has fluctuated between $40 and $44 per barrel, and seems to be stabilizing at a new threshold of $40 per barrel.

OIL PRICE CHANGE
(June-August 2020)

Despite the significant contribution of OPEC+ cuts in stabilizing the oil market, supply is only one factor in the equation. The complete stabilization of the physical fundamentals of the market requires the recovery of demand. Therefore, the recovery of January price levels ($70 and $63 per barrel for Brent and WTI, respectively), involves maintaining a policy of appropriate cuts until oil demand recovers; this factor, which is beyond the reach of OPEC+, is directly linked to the recovery of the world economy, especially that of the major consumers: the U.S., China, India, and the OECD countries.

Because of this, the price remains sensitive to information that could compromise the recovery of the world economy, such as the new cases of COVID-19 in Europe that would seem to confirm the feared «second wave» of the pandemic, its violent expansion in the U.S. and the catastrophic reports of the economic downturn in the U.S. and Europe. On Thursday, July 30^th, prices reacted downwards, especially the WTI, after the U.S. Department of Commerce reported that the U.S. GDP fell⁵ by 33% in the second quarter; there is no historical precedent for such fall, which surpasses that of the economic recession of 1940, when the GDP fell by 10%.

On the other hand, the market is waiting for the effect of the new cut levels of the OPEC+ countries, when they will place in the market more than two million barrels a day of oil production, as a result of the agreements established, due to which, as of August 1^st, the group would reduce its production cut levels from 9.7 million barrels per day to 7.7 million barrels per day⁶, which some analysts are observing with caution, since the high levels of inventories that still exist, as well as the economic problems of the main consumers, could prevent the market from absorbing these extra volumes, affecting therefore the price.

We have waited until today to issue this bulletin, in order to have an initial market reaction to the entry into force of the OPEC+ cutbacks and their effects on the market. So far this week, the impact on the price has not been significant, it remains in the $40-44 range that we have mentioned. However, we will have to wait and see if this week the OPEC+ countries that lagged in their cuts will make compensations, which would take additional barrels out of the market, thus diminishing the real impact of the loosening of the cuts.

PRODUCTION

On August 1^st, the relaxation of the production cuts in OPEC+ countries came into effect, setting the new production cut level at 7.7 million barrels per day, an additional two million barrels being released to the market from the cut levels enforced during May, June, and July (9.7 million barrels per day).

There is uncertainty in the market about the timing of this supply-enhancing measure, in view of the global oil demand’s continuing recovery problems.

However, the high level of compliance with the production cuts, estimated at 107% at the 20^th meeting of the Joint Ministerial Monitoring Committee (JMMC) on July 15^th, has encouraged the group’s countries to continue with the second phase of the agreement by relaxing the production cut by two million barrels a day.

Analysts’ fears are based on the concern that the market will once again be affected by the oversupply of oil, within the background of a slow recovery of the world economy and, consequently, of the oil demand, whose recovery to the levels prior to the COVID-19 pandemic is forecasted to year 2021.

A NEW RISK OF OIL OVERSUPPLY IN THE MARKET?

The Director General of the International Energy Agency (IEA), Fatih Birol, noted⁷: «The markets are gradually recovering, but there are two major uncertainties: One is the shape of the economic recovery globally … And the second one is whether or not we are going to see a second wave of coronavirus.»

Meanwhile, private oil producers see a growth in oil supply for the next few months, estimating the recovery of demand as much as the reopening and recovery of the largest world economies progresses, always with the expectation of stepping back the re-openings if a second wave of COVID-19 infections were to occur. U.S. shale oil producers forecast a future price of $40 per barrel of oil in the coming months⁸. For its part, Shell estimates the price of oil at $35; meanwhile, ExxonMobil expects supply to outstrip demand for the rest of 2020, but only sees a recovery close to the previous levels of the pandemic by mid-2021.

However, Ministers from both Saudi Arabia and Russia have expressed⁹ their conviction that the oil market can absorb the extra oil production of the OPEC+ countries. Saudi Minister Abdulaziz bin Salman said: «The extra supply resulting from the scheduled easing of production cuts will be consumed as demand continues on its recovery path«, while Russian Minister Alexander Novak said: «Almost all of the output hikes will be consumed in domestic markets of the producing countries as the demand is recovering.»

It seems that the big producers Saudi Arabia and Russia are not willing to give up their market positions as soon as oil demand recovers. The clearest sign of this determination is that, although both countries agree to increase their production, their marketing offices are nevertheless placing their segregations, especially Russia’s Urals and Saudi Arabia’s Arab Light, at discounts, as indicated by their references¹⁰, which –in the case of the Saudis- expect to cut the sales price for shipments of Arab Light from Asia by 0.46 dollars by September, placing the difference at 0.72 dollars compared to Oman’s and Dubai’s sales price for Asia. For shipments for sale in August, the same difference stood at 1.2 dollars.

OFFICIAL SALES PRICE OF SAUDI ARAB LIGHT
vs. OMAN AND DUBAI FOR ASIA
December 2019 – August 2020

With the relaxation of the cuts, the world oil supply should increase by two million, from 81.2 million barrels a day to more than 83 million barrels a day, which, when added to the high levels of storage still existing, could keep the market over-supplied.

On the other hand, both OPEC+ leading ministers and market analysts expect and trust that the countries lagging behind in the implementation of production cuts -mainly Nigeria, Iraq, Angola and Kazakhstan- will comply with the commitments they have made to compensate for production, which means that they would stop producing approximately 850,000 barrels a day. In this way, the additional volume that would enter the market would be approximately 1.15 million barrels a day, instead of two million barrels a day, and would leave the actual OPEC+ production cut between 8.1 and 8.3 million barrels a day, according to statements¹¹ by Saudi Minister Abdulaziz bin Salman.

The new levels of production cuts and their effect on the market will be reviewed ¹² by the Joint Technical Committee (JTC) on August 17^th, and by the JMMC at its next meeting on August 18^th, 2020.

Mexico

According to information issued¹³ by Petróleos Mexicanos (PEMEX), the country’s oil production in June was at its lowest level since 1979, being currently at 1.6 million barrels per day (MMBD).

MEXICO’S OIL PRODUCTION
(January 2019-June 2020)

Mexico’s oil production in June suffered a fall of 28 thousand barrels with respect to that reported in May; this represents 66 thousand barrels less with respect to the same period in 2019.

The main causes of this reduction in oil production could be the cuts established by OPEC+, which the country accepted only during the month of May, as well as the tropical storms “Cristobal” and “Amanda”, which hit the country between May and June.

United States

The U.S. Energy Information Administration (EIA) indicated in its July 24^th report¹⁴ «This Week in Petroleum» that the United States recorded a production of 11.10 million barrels per day, the same level reported on July 17^th.

Furthermore, the North America Rotary Rig Count¹⁵ by Baker Hughes states that, as of July 31^st, the number of active oil extraction drills reached 180, one less than last week, maintaining the relative stability it has had throughout this month; however, there can be no talk of recovery of shale oil activity in the U.S. if we compare the current number of drills with what there were before the pandemic (682 in March).

Likewise, in a Monday, July 27^th publication¹⁶, the EIA takes 40 financial statements of oil companies in the United States (responsible for 30% of the country’s production) as a reference to emphasize that, as economic conditions change and influence crude prices, the value of the oil reserves of these companies also varies, which impacts their financial capacities. (Let us remember that in the United States; most of the producing companies own the reserves they operate, using them as leverage for their «edging» operations or their financing operations).

The depreciation of these oil companies in the first quarter of this year shows the largest decline since 2015 with respect to the value recognized by them, which is directly related to the collapse of prices this year 2020. According to the EIA, these amortizations, in a $40 per barrel price scenario, could affect the current value of the proven reserves of the oil companies, which would affect the recovery of the U.S. production.

Additionally, in July, the possible closure of the Dakota Access Pipeline was notified¹⁷, as well as the decision to close the High Plains Pipeline¹⁸ for environmental reasons. Both pipelines carry production from the Bakken area, which was recorded at 1,095 million barrels per day in July, corresponding to 15% of the country’s production; so these decisions could affect oil production in this region, as well as generate uncertainty for the drilling of additional wells in the region.

However, according to EIA estimates¹⁹, the projected production for August in the aforementioned Bakken region will have a slight increase of 18,000 barrels per day, making it the only region in the U.S. that would increase its production.

OIL PRODUCTION IN THE BAKKEN REGION (January 2011 – August 2020)

ExxonMobil and Chevron losses

The two largest U.S. oil companies posted significant losses during the second quarter of 2020, according to financial statement reports released on July 31^st.

Such a drop is a response to the global collapse in demand for oil products between April and June, especially fuel and jet fuel, due to the decisions of economic and mobility restrictions that countries had to make to face the COVID-19 pandemic, which, along with overproduction in March-April, caused the collapse of oil prices.

ExxonMobil²⁰ presented losses of 1.08 billion dollars in the second quarter of the year and its shares fell by 2.3%, which will affect investment in the development of future projects in 2020. The only exception is development in Guyana, where they are already producing 125 thousand barrels of oil per day and have invested in the manufacture of a floating production vessel. Cash flow did not show any income from operating activities between April and June. However, the recovery in the oil price in May and June adjusted the valuation of the company’s oil inventories positively. Losses in the first quarter were $610 million. ExxonMobil confirmed that it will not assume additional debts.

EXXONMOBIL: PROFIT AND LOSS
PER QUARTER
(2005-2020)

As for Chevron²¹, it announced an $8.27 billion loss in the second quarter of 2020, in contrast to the $3.6 billion gain reported in the first quarter. The company reported an adjusted loss of $3 billion this year, when in the same period of 2019 an adjusted gain of $3.4 billion was reported. The company suspended the plan to increase its shale oil production in the Permian basin, but invested $5 billion to acquire Noble Energy²². It also announced a 5% reduction in its global production. Chevron’s shares fell by 5.5%.

CHEVRON: PROFIT AND LOSS (ADJUSTED) BY QUARTER
(2001-2020)

ECONOMY

COVID-19

On August 3^rd, the number of COVID-19 infections²³ reached 17.88 million people worldwide, with 686,000 deaths, while 10.7 million people have recovered.

The United States continues to lead²⁴ the list of countries with the highest number of infections, with 4.5 million people, representing 25.6% of the world’s total infected population, and with 153,000 deaths, it has 22.3% of the world’s coronavirus-related deceases.

Brazil is the country with the second highest number of infections, reaching 2.7 million people, while their number of deaths is 93,000. India is next in the list, with 1.8 million people infected and 38,000 deaths.

Vaccines

The British pharmaceutical company, AstraZeneca, will receive protection from the countries with which it has reached supply agreements for its vaccine. This protection is to cover the company against future sues that could be generated as a result of the possible side effects related to the COVID-19vaccine this laboratory is developing.

According to an article²⁵ published on July 30^th by Reuters, a senior executive of the London-based pharmaceutical company said that in the contracts to be agreed on for the supply of the vaccine, the countries should take the risk of meeting legal sues, because this is a matter of national interest.

Regarding the vaccine that the United Kingdom’s Oxford University is creating²⁶ , they estimated, in an official publication dated July 30^th, that the vaccine would be ready by the end of this year, after testing it on ten thousand volunteers.

China is another country working on a vaccine to combat COVID-19. This week²⁷ the head of the Chinese Center for Disease Prevention and Control, Gao Fu, said the Center had received an experimental vaccine, and he encouraged people to get vaccinated, once the drug was approved.

Finding a vaccine to fight the coronavirus would be a scientific and political triumph, and China is competing with the United States and the United Kingdom to be the first to produce a vaccine capable of ending the pandemic. Currently, 8 out of the 20 vaccines that are in the research and testing phase are being developed in China, so this country would be the one with more vaccine options in the research stage.

On Monday, July 27^th, the press service of the Russian Ministry of Health reported that the second phase of tests being carried out by the National Research Center for Epidemiology and Microbiology at Gamalei is nearing completion. Once the tests have been completed, state registration of the vaccine will proceed.

Russia announced²⁸ on July 29^th, that it will be the first country to present a vaccine against COVID-19. It expects to do this in August, according to statements by the President of the Russian Direct Investment Fund (RDIF), Kirill Dmitriev.

Despite moderate optimism about progress in developing vaccines against COVID-19, and its impact on economic recovery, several news stories this week show the difficulties countries face in overcoming the crisis that has generated the coronavirus pandemic.

Europe

At the beginning of August, the European Council is expected to review its recommendation for the list of countries whose citizens can enter the European Union (EU). So far, the recommendation²⁹ set on July 16^th has been maintained, although with two countries fewer -Serbia and Montenegro. Moreover, this list, originally established at the end of June, keeps reiterating –by not including them- the countries for which the entry ban is being maintained, comprising those that have the most cases of COVID-19 to date: United States, Brazil, India, Russia, South Africa, Mexico, Peru, Chile, and Iran ³⁰.

The resurgence of cases of coronavirus³¹ in Catalonia, Spain, has led the United Kingdom to establish, as of July 25^th, a two-week-quarantine for those arriving from Spain, a measure that has been followed by Norway. For their part, since July 28^th France, Belgium and Germany have been asking their citizens not to go to Catalonia, while Denmark is recommending testing for people returning from Spain.

On July 30^th it was reported³²that the GDP of Germany, the EU’s main economy, fell by 10.01% in the second quarter of this year. This was a greater drop than in the previous quarter (-2%) and also greater than the figure recorded during the crisis in 2009 (-4.7%), being «…the biggest drop since GDP data began to be calculated quarterly in 1970,» according to Germany’s Federal Statistics Office (Destatis). This crisis, caused by the pandemic, led to a collapse in exports and imports of goods and services. The government, for its part, increased spending during the crisis.

EVOLUTION OF GERMANY’S GDP (2006-2020)

This decline in the German economy for the second quarter is added to the even greater falls experienced by the main European economies during the same quarterly period, including France³³, with -13.8%, Italy³⁴ with -12.4%, and Spain³⁵ with -18.5%, which together with the rest of the 19 countries in the area, presents a contraction of -12% for the Euro Zone, according to data published³⁶ by Eurostat.

One consequence of the fall in GDP is unemployment, which in the case of the European Union reached 7.8% in June, according to Eurostat figures; this percentage is reflected in 12.68 million people out of work in the Eurozone (203,000 more than in May), and 15.023 million unemployed in the EU (281,000 more than in May 2020); in relation to June 2019, the increase in unemployment reaches 824,000 people for the Eurozone and 395,000 in the European Union.

GROWTH RATE OF EUROPEAN UNION COUNTRIES MEASURED BY GDP
(Third quarter 2019 – Second quarter 2020)

China

Li Keqiang, Prime Minister of the State Council of the People’s Republic of China, said³⁷ on July 29^th that his country would take additional measures to stabilize foreign trade and investment. It would expand economic openness and make innovative developments in the area of services, considering that the greatest uncertainty for trade and investment comes from the «external environment» and that stability is a key factor, especially for global production and supply chains.

Among the measures to be taken, they would be the relocation of industries aimed at foreign trade to provinces in the center, west and north-east of the country. Also, to give more support to e-commerce outside China’s borders with the creation of warehouses overseas and service enterprises for foreign trade. The country plans to generate a friendlier environment for foreign investment, to expand the range of the qualified technology import and export operators, and to revive international tourism and sports cooperation within the framework of COVID-19 containment protocols.

On the other hand, the Hong Kong Special Administrative Region government reported³⁸ that its economy fell by 9% in the second quarter of 2020, compared to the same period in 2019. This was as a result of the decline in business activities due to the pandemic and the impact of social protests. However, they expect to see signs of stabilization once COVID-19 was controlled and the economy in mainland China had recovered.

India

The Chairman of the 15^th Financial Commission reiterated³⁹ on July 27^th the government’s forecast for a V-shaped recovery of the economy in the last two quarters of the year. However, in a Reuters survey⁴⁰of 60 Indian economists from July 20^th to 28^th, a majority thought that the economy would contract this quarter and the next one; they also noted that the strength of the economy had shown a decline from the previous quarter, and 37 percent of those surveyed predicted that the Reserve Bank would soon cut interest rates again, and that it would take the economy two years or more to return to pre-COVID-19 levels. Reuters believes the survey results “…echo recent criticism of New Delhi’s $266 billion economic rescue package, which included no new spending, tax cuts, or cash support.”

United States

On Monday, July 27^th, the media reported⁴¹ that the dollar fell 0.9%, due to the impact of the spread of COVID-19, dropping the dollar quote to its lowest level since 2018. The British pound, the Japanese yen and the euro rose 0.7%, 0.8%, and 0.9%, respectively, and the price of gold⁴² –an indicator of the search for a safe value in times of uncertainty- rose that day  to $1,944 per ounce, beating the record for 2011 ($1,921).

Some U.S. states are returning to partial closure as COVID-19 cases grow, which will continue to affect the U.S. economy and the recovery of global fuel demand, with the United States being the largest consumer of oil.

GROWTH OF COVID-19 CASES IN THE U.S.

The Commerce Department’s Bureau of Economic Analysis (BEA) published⁴³ the U.S. GDP figures for the second quarter of 2020: the GDP fell 32.9% between April and June, showing the worst performance of the U.S. economy since the 1940s and evidencing the strong impact of the COVID-19 crisis on the country’s economy.

HISTORICAL DECELERATION OF THE U.S. ECONOMY

In the last quarter of 2008, at the peak of the financial crisis, the U.S.GDP presented negative figures with -8.4%, and the previous record⁴⁴ was -10% in 1958, during the Eisenhower presidency; therefore, analysts and media have highlighted this fall in 2020 as the largest since 1945⁴⁵, when records of this variable began to be kept.

The BEA⁴⁶ indicates that this decrease in the indicator in 2020 reflects the «… rapid shifts in [economic] activity, as businesses and schools continued remote work and consumers and businesses canceled, restricted, or redirected their spending”.

The U.S. Federal Reserve (FED), after a two-day meeting, issued a statement⁴⁷ on July 30^th where it indicated that «the path of the economy will depend significantly on the course of the virus.» The Feds decided to keep interest rates at the historically low levels of 0-0.25% that it set in March, until the economy «is on track to achieve its maximum employment and price stability goals».

Within the framework of the challenges faced by the United States for the recovery of its economy, the proposal for a second economic stimulus package by the U.S. government is still under discussion⁴⁸because Republicans and Democrats have not been able to reach agreements⁴⁹on the total amount, the monthly payment of unemployment assistance, the exemption from liability for businesses, doctors, and schools so that they cannot be sued, among other issues.

With regards to unemployment, the numbers of requests for assistance continue to rise. On July 25^th, the Department of Labor reported⁵⁰ that such requests amounted to 1,434,000, which is 12,000 more than the previous week, thus continuing to reverse the downward trend that characterized this indicator since the end of March; it is reported⁵¹ that 17 million Americans remain unemployed and, since March of this year, 53.8 million have requested assistance from unemployment insurance.

U.S. UNEMPLOYMENT CLAIMS
(March-July 2020)

These factors are compounded by the social protests that persist after the assassination of George Floyd and the political confrontation during the election period, with President Trump’s opposition to the postal vote and his statement on the possibility of postponing⁵² the November 3^rd elections, to which Republicans and Democrats alike have opposed, since only Congress can change this date. Although the outright rejection set Trump back⁵³, such statements could raise political tension in the electoral process.

DEMAND

The recent measures taken by governments to control the resurgence of COVID-19 infections in Europe, as well as the record rates of infection in the USA, Brazil, and Mexico, all of these factors directly impact the mobility of people.

The energy firm Rystad Energy put⁵⁴ the demand for oil products at 90.2 million barrels per day in June 2020, while its demand forecast for 2020 will be 89.77 million barrels per day, and for 2021 it estimates it will reach 97.17 million barrels per day, still below the levels of 2019, when it was at 99 million barrels per day.

The following graph shows the impact that the COVID-19 pandemic has had on the demand for the various oil products, as well as the projection of a gradual recovery by 2021. In all cases, it can be seen that, after the fall during the first half of the year, demand is gradually increasing, even in a scenario with a drop due to a second wave of COVID-19.

IMPACT OF COVID-10 ON GLOBAL DEMAND
PETROLEUM PRODUCTS

World oil demand has maintained the same trend seen during the last fortnight of July 2020, always affected in its estimates by the variable that represents the COVID-19. Rystad’s forecast foresees a scenario in case of a return to restrictive measures in the world, which would cause a drop in oil demand of 3.7 million barrels per day for the rest of 2020.

Mobility is the main factor influencing forecasts of oil product consumption. Global demand for jet fuel⁵⁵, which represented 7.7% of world oil consumption in 2018, did not pick up as expected in June 2020, foretelling a slower⁵⁶ year-on-year recovery in passengers traffic than the amount expected by the International Air Transport Association (IATA) for 2020; such issue changed the forecast estimated by this international institution, which groups 290 airlines that account for 82% of world air traffic.

In June of this year, air mobility volumes contracted by 86.5% year-on-year, with international travel –which accounts for more than 2/3 of global air mobility- contracting by 96.8% when compared to June 2019. These data led IATA’s benchmark forecast to predict a 55% drop in air mobility by 2020, a 9-point increase from its April forecast. The United States and the developing economies, which account for 40% of global air travel, showed slow containment of COVID-19, leading to a continued shutdown of air mobility; therefore, 55% of the world’s travel consumers are not expected to use air travel for the rest of this year 2020.

Europe

Regional mobility continues to increase progressively and cautiously, always with the risk of restrictive measures being applied by governments, should outbreaks of COVID-19 infection require it. However, oil consumption in Europe is expected to increase as it enters the summer holiday period, as land and air transport accounts for almost 60% of oil consumption on the continent⁵⁷,according to data published in July by the European Union.

China

Recent flooding hit more than 23 provinces in China, having effect in domestic fuel consumption, which may cause problems for refineries, both in processing and supply, due to record levels of oil that were imported in the second quarter of the year. Oil demand forecasts a downward scenario in imports for the second half of the year, due to the state of its crude oil inventories (almost 900 million barrels), as we mentioned in the previous Oil Report on July 24^th.

Analysts in the maritime transport area highlight that after the period of record imports of cheap oil from China in March-May, which reached levels of 13.4 million barrels per day, there have been logistical problems in handling imports, which has led to a decrease in the number of ships waiting to unload, falling⁵⁸ to 111 Supertankers (VLCC) on standby; this suggests a decrease in the oil import pace of oil to the country.

DISCONTINUATION OF SUPER TANKS OF CRUDE OIL (very large-ultra large) ANCHORED ON CHINA’S EASTERN COAST

India

From the Indian refining sector, they say that data in oil demand in July 2020 was stable, as it is estimated⁵⁹ by the director of the state-owned refining group Bharat Petroleum Corporation Limited (BPCL), Ramamoorthy Ramachandran, to the Argus Media agency.

The government extended measures restricting mobility (including international flights) and commercial activity until August 31. According to India Oil Corporation (IOC), by July 15, gasoline consumption fell⁶⁰ by 6% and diesel by 18%, compared to the same period in the previous month. Ramachandran assures, without giving details, that there is compensation in the Indian market with the consumption of other fuels.

United States

According to the EIA’s weekly report⁶¹, oil imports into the U.S. fell again this week to 5.14 million barrels a day as of July 24^th –a drop of 13% from the week of July 17, when it had recovered slightly to 5.94 million barrels a day.

Oil imports are 722,000 barrels per day below the same period in 2019, when they stood at 6.66 million barrels per day, with domestic production of 10 million barrels per day.

The sudden increase in imports of 374,000 barrels, recorded in the week of July 17, was related, on the ne hand, to the increase in crude oil processed in the refineries, which, as of July 24, was reported at 78%, and, on the other hand, to the beginning of the summer vacation period, where there is a seasonal increase in air and ground transportation; However, this recovery will be slow, both because of mobility restrictions in many states due to the increase in cases of COVID-19, and because of the high levels of oil and product inventories still existing in the country that are capable of draining and supplying the seasonal demand.

STORAGE

In the United States, commercial oil storage, as of July 24, fell⁶² by 2% to 526 million barrels and, although it is 21% above the levels registered in the same period 2019, it is the first week that shows a reduction after an increase in storage from April 2020.

OIL STORAGE UNITED STATES 2019-2020

Commercial storage is currently at levels similar to those of March 2017, when it averaged 535 million barrels per day.

OIL COVERAGE DAYS IN THE UNITED STATES 2018-2020

With regard to days of coverage, they fell this week to 36.6 days, 3% less than the previous week, when they went up to 37.7 days. Coverage days are 34% higher than records for the same date in 2019, and more than 33% higher than the average for the past five years⁶³.

VENEZUELA

106 years of the Zumaque Blowout

This July 31^st was the 106^th anniversary of the blowout of the Zumaque oil well. Located in the Zulia state (north-western region of Venezuela),  the Zumaque was the pioneer of the commercial exploitation of oil in our country, which, years later, would become the largest oil exporter in the world until the 1970s.

Today, the Zumaque well and the whole country’s oil production are facing the worst crisis in their history, mainly due to the government’s failure to manage its oil industry, which led to the operational collapse of Petróleos de Venezuela.

After six continuous years of interventions, persecutions, and diversion and misuse of funds, after placing people with no knowledge or experience in the oil sector as heads of the national oil company and, above all, after the militarization of the company, the country’s oil production has fallen from 3 million barrels a day in 2013 to only 356 thousand barrels a day of oil in June 2020—a drop of 2,644 million barrels a day of oil in only seven years.

Despite the fact that the country managed to certify 316 billion barrels of proven reserves in 2007—the largest oil reserves in the world- today’s oil production has fallen back to the production levels it had in 1930 —a regression of 90 years.

HISTORICAL EVOLUTION OF PRODUCTION
OIL COMPANY IN VENEZUELA

The United States and diesel trade

In recent months the situation with gasoline in Venezuela has become more complicated: while the national refining system operates at only 10% of its capacity of 1.3 million barrels a day, and after several failed attempts to reactivate these large complexes, while managers and workers are still prisoners/ kidnapped by the government, Venezuela only has the reserves of imported fuel from Iran that arrived in the country on May 24^th.

These inventories are not even enough to supply the country’s depleted internal demand, which, as a result of a 64% accumulated contraction of the economy in the period 2014-2020, has fallen from 614 thousand barrels a day to a domestic demand of only 150 thousand barrels a day, counting gasoline, diesel, and fuel-oil; as a consequence, the shortage of gasoline remains throughout the country and the impact is felt in the fuel stations.

Although the country is totally paralyzed by a national quarantine ordered by the government since March, the current management of the national oil industry is not even capable of producing or supplying the domestic market with gasoline, diesel, lubricants, or gas.

The diesel shortage particularly affects the sectors of heavy transport, industry, and electrical service. The latter has a particular impact on the country, due to the constant interruptions in the provision of this fundamental service, which leaves large regions of the country, mainly in the interior, without electrical service for periods of between four to eight hours.

Although in 2014 a 64% or more of the country was supplied by hydroelectric power, problems with the high-voltage transmission systems from the south of the territory (where the Guri hydroelectric complex is located), and the problems that these facilities have been presenting for hydroelectric power generation, due to lack of maintenance, have made the electricity supply dependent on Thermoelectric Plants, installed in 2009 in the center and west of the country (due to the opacity of the government,  no current figures about either consumption or electricity generation are known or available).

In addition to the problems of management of the electricity sector by CORPOELEC (the state power corporation in Venezuela), which caused at least three national blackouts in 2019 and which has dramatically deteriorated the provision of service, especially since the militarization of the sector, most of these Thermoelectric Plants are dual Diesel-Gas. Thus the plants, including combined cycle plants, were bought with the idea of running them permanently on gas; this represented no problem for the country, considering our surplus gas reserves and the new offshore gas developments, both in the northeast of the country, with the “Mariscal Sucre” Project, and in the west with the “Rafael Urdaneta” Project.

OFF SHORE NATURAL GAS PROJECTS IN VENEZUELA

Although the country has 197.1 GCP of gas reserves, placing it in the 8^th place in the ranking of gas-producing countries worldwide, 90% of our gas is associated with oil—it is produced in conjunction with oil production.

WORLD RANKING OF PROVEN GAS RESERVES

In 2014, the country’s gas production reached 7,392 million cubic feet per day (MMCFD), coming from both the Anaco area and northern Monagas, both in the east of the country. Of these, 2,125 MMCFD of gas, i.e., 25% of national production, was destined to supply the domestic market, while the remaining 75% was used for reinjection and oil production. At the same time, progress was being made on the offshore projects, both in the east and the west, to guarantee gas coverage for the whole country and, therefore, for the electrical, industrial, and domestic system at the national level.

But, from 2015 on, the government’s priorities and plans for natural gas changed radically.

PDVSA decided to withdraw from the «Rafael Urdaneta» gas production project in the west of the country, where 9.51 TCF of reserves in the PERLA 3X field had been certified, and ceded all participation to PDVSA’s European partner companies; while in the east of the country, the government also decided to cede the gas fields of the “Mariscal Sucre” and “Plataforma Deltana” projects, where 14 TCF of proven gas reserves were certified, to the Russian company Rosneft (which left the country) and to the transnationals operating in Trinidad and Tobago. All of this was done despite the fact that the interconnection with the center of the country through an 800-kilometer gas pipeline, the «General Francisco Bermúdez,» had been completed and drilling, and underwater gas collection systems continued at the “Mariscal Sucre” Project, which feeds a gas and petrochemical pole in Güiria, Sucre State, in the northeast of the country.

On the other hand, the collapse of oil production in the country (reducing production in 2,644 million barrels in just seven years), dragged down the production of the gas associated with that oil production. That is why there is no gas in the country, neither domestic gas, or for industrial consumption, or for the electricity sector.

Therefore, the national electrical system, in the face of the country’s gas shortage, depends on the supply of diesel, which is fundamental for operating the abovementioned thermoelectric complexes installed in the center and west of the country.

One formula that the government has been using to obtain volumes of diesel, in the face of the ineffectiveness of the national refining system, is to exchange the gas that European companies take out of the west of the country for oil, and this is evidence of the government’s bad decisions on oil matters. PDVSA pays with oil for the gas, located in Venezuelan territory, which is supposed to be produced by PDVSA.

Using these swaps operations, the government has also paid with oil shipments for volumes of gasoline and diesel purchased abroad by private companies. These operations have been taking place, despite U.S. sanctions, since licenses have been granted to international companies for this purpose, allowing the supply of fuels that —given the internal situation of the country- would alleviate the plight of the Venezuelan population.

Now, according to information published by Argus Media⁶⁴, the United States intends to intensify the sanctions against Venezuela; in this case, to reduce the exchange of gas from the Perla field, on the Costa Afuera/Offshore, for diesel —a fuel that is exempt from the restrictions imposed by the United States- mainly with the companies Repsol from Spain, Eni from Italy and India Reliance.

In recent days, three shipments have been received from Italy, Colombia, and Spain, whose vessels could carry a total of 925,000 barrels of diesel. According to the information referred to by Argus, three more shipments of diesel are expected by the end of August and September, which could amount to 1.3 million barrels.

However, the government’s inability to increase oil and gas production, as well as to manage the national refining system and produce fuels, continues to place the entire country in a situation of vulnerability and restrictions that have no justification whatsoever, as Venezuela owns all the resources in the country.

Speaking of gas, how do Venezuelans cook?

The supply of Liquefied Petroleum Gas (LPG), which is the gas used by 89% of the population in Venezuela for cooking, is going through a severe crisis whose cause is the deterioration of the infrastructure needed for the production of this fuel, particularly by the operational collapse of cryogenic systems in the east of the country: Jose, Santa Barbara, and Jusepin, and in the west of the country (Ulé), in addition to the operational collapse of the national refinery system.

According to statements⁶⁵ by workers’ leaders of the FUTPV (Federación Unitaria de Trabajadores Petroleros de Venezuela-Oil Workers Union) Venezuela had the capacity to produce 72,000 barrels per day (MBD) of LPG. «We were self-sufficient and had 22 MBD left to store. We even became LPG exporters», said the union leader, adding that currently the production is just 20 MBD of LPG, which is insufficient to cover the daily domestic demand of 44 MBD.

The situation became increasingly somber after the government intervened the company’s subsidiary PDVSA Gas Comunal (in charge of the distribution of LPG to the communities), and handed over this service to the country’s governors’ offices in each of the federal states. These local governments, in addition to laying off more than 60% of the workers of PDVSA Gas Comunal, privatized de facto the service and handed it over to so-called «Corporations» created in each federal state, thus turning the gas supply into an issue of patronage and cronyism, and also turning the system into an instrument for social control, just as the government is doing with the “Cajas Clap” (“Clap Boxes”-food delivered to the households and paid at subsidized prices). This situation has led to the dollarization of the price of the LPG “bombonas” (small cylinders); in addition, the waiting lists to receive the LPG cylinders are getting longer and the dispatches are getting more spaced in time, sometimes surpassing the 3-month waiting period.

Out of the aforementioned percentage of Venezuelans who depend on LPG for cooking, 85% use small cylinders/bombonas for their homes, while the remaining 15% use stationary tanks installed in buildings and shops. Only 7% of the population cooks with methane gas or piped gas, located mostly in the big cities. Meanwhile, the remaining 4% must rely on firewood, kerosene or electricity, if interruptions in electrical service allow.

OPTIONS USED BY VENEZUELANS
FOR COOKING

New accidents, less gas

Last weekend, two fires were reported⁶⁶ in the Cardón refinery, which is part of the Paraguaná Refining Center, located in the state of Falcón, in the west of the country. The events occurred in the area of pumps that feed the naphtha plant —a fundamental additive for the production of gasoline- and in the distillation plant.

In relation to these fires, workers’ leaders of the FUTPV indicated that this situation will worsen the shortage of fuel in the country, since the already diminished production of gasoline will be reduced by the 27 thousand barrels of gasoline that Cardón contributed, since it is inoperative and has serious structural problems.

As for the El Palito refinery, the oil workers reported that operations have not been able to resume⁶⁷, since the catalytic cracking plant collapsed due to multiple leaks during attempts to increase production, and also due to the shortage of fuel for plant operations.

In this regard, workers’ leaders of the FUTPV assured⁶⁸ that the shutdown of this plant means subtracting 30 thousand barrels of gasoline per day, although this amount is insufficient to cover the national demand for fuel.

Conflict at the Workplace. The «Oil Hurricane»

For several months, workers of Petróleos de Venezuela have organized protests⁶⁹ in various cities of the country to demand fair wages, the fulfillment of their contractual benefits and working conditions that allow them to carry out their duties.

The protests unfolded this week in all oil camps and working areas, in the cities of Cabimas (Zulia state), Maturín and Punta de Mata (Monagas state), Puerto La Cruz (Anzoátegui state), Valencia (Carabobo state) and Güiria (Sucre state).

In addition to these protest actions, Petróleos de Venezuela’s retirees demanded payment of the pension fund and improvements to the health care system, which is currently non-existent both in PDVSA’s health centers and in private clinics, since the company’s health insurance, SICOPROSA, is inoperative due to lack of payment, although it is deducted from the workers’ paychecks.

The oil workers grouped in the FUTPV mobilized to protest for the improvement of their contractual benefits and against the constant violations of the Collective Petroleum Agreement (due since 2019); they requested⁷⁰ the payment of the amount due of $150 to all workers and retirees of Petróleos de Venezuela, as agreed with the workers of PDV Marina, who have been protesting for months in defense of their labor demands and in defense of the rights of their comrades who have been unjustly detained, as part of the political persecution that is taking place inside Petróleos de Venezuela.

Another of the claims made by the workers is the resignation of Wills Rangel and other authorities who head the FUTPV, since the last call for elections of this union body was in 2016, but the electoral process was suspended and no new date has been set for these elections.

In the protest held at the El Palito refinery, the workers handed over a document⁷¹in which they requested the restitution of their contractual benefits, while threatening to resign their positions if their claims were not met. Workers in the oil industry will continue to carry out similar protests and movements at other facilities, including a large mobilization in various cities around the country on August 4^th, called «The Oil Hurricane”.

Among the proposals that the workers are making on August 4^th, during the protest are: the restitution of medical services, the payment of the 2016-2019 pension fund, the cancellation of labor liabilities, the end of the repression against the workers, the release of those who are detained, and the payment of decent wages (currently the average wage for oil workers is $9 per month), all in accordance with the provisions of the Constitution of the Bolivarian Republic of Venezuela.

The labor conflict in the oil sector is an important factor in the political struggle in the country, given the long tradition of combative grassroots unions of oil workers, who led emblematic general strikes, such as the 1936 strike during the dictatorship of Juan Vicente Gomez, which was the beginning of a long tradition of union struggle in the country.

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