BALANCE OF THE YEAR
This year, the oil market had probably faced the most complicated year in its modern history, after the resounding collapse of oil demand and prices, starting in March, when a set of extraordinary circumstances converged in what many called «the perfect storm.
The year 2020 began with price levels of $67 and $61 per barrel for both the Brent and WTI, demand levels of 101.23 million barrels per day and world production of 94.1 million barrels per day.
These balanced market fundamentals collapsed when OPEC+ failed to reach an agreement to maintain its production levels agreed on March 5th. The disagreement between the Saudi Arabia and the Persian Gulf monarchies on the one hand and the Russian Federation on the other, brought with it announcements of a «price war» between the Saudis and the Russians that led to an overproduction of oil and supply to the market estimated at 6.3 million barrels a day in March and 8.2 million barrels a day in April.
But both the disagreement of OPEC+ and the overproduction of oil coincided with an unusual event: the declaration of the coronavirus pandemic, COVID-19, which spread violently and caused the collapse of the world economy and the demand for oil, which fell by 25 million barrels a day by June.
The extraordinary situation confronted by the oil market-tested not only the leadership of the oil-producing countries but also the foundations that gave rise to OPEC back in 1960: the need to intervene in the oil market, to regulate the production of oil, a strategic natural resource, to preserve its value.
Paradoxically, it was the political intervention of US President D. Trump, the standard-bearer and ideologically committed to the «free market», which would make the most energetic call to both the Saudi kingdom and the Russian Federation to reach an agreement to end the price war and reduce oil production to recover prices. He even spoke of cutting 13 million barrels a day of production.
Although neither the US nor any other OECD country was willing to sacrifice its production, it began to decline due to the price collapse, demonstrating how vulnerable US and Canadian production is to price levels. US oil production fell from record levels of 13.1 billion barrels per day to 11 million barrels per day in three months.
The month of April saw the extraordinary situation of the collapse of the WTI marker when it traded at a negative value of -37 dollars a barrel for April, as the storage capacity of the Cushing Oklahoma was filled. This shows the vulnerability of this century-old marker of the Atlantic basin’s crudes.
It was interesting how the US administration resorted all the available instruments to regulate its production as requested by the Texas Railroad Commission or store its production as the DOE did, in addition to opening strategic reserves to store US production and keep its capacities afloat.
Heavy oil producers in Latin America also showed significant vulnerabilities. On the one hand, the mismanagement Venezuelan oil industry’s, with 2.68 million barrels of oil lost between 2014-2020, taking away any protagonism in the oil market. On the other hand Mexico, with a drop in production of 1.8 million barrels of oil between 2004-2020, could hardly accompany the initial efforts to regulate production.
Two large and centennial oil producers in Latin America have lost any impact on the international oil market: Venezuela for political reasons and Mexico due to the Cantarell field’s exhaustion.
All the excess oil that flooded the international oil market in the face of the collapse of demand was directed to the inventories, which reached extraordinary levels of 540 million barrels in the US’s commercial stocks and 656 million in its strategic reserve, as well as 3,204 million in the inventories of the OECD countries, granting, 42 and 77 days of coverage respectively for May.
On the other hand, China, the leading oil importer in the world, made extraordinary purchases of cheap oil, reaching imports of 13 million barrels of oil per day by June, to the point that its ports were congested and collapsed by July.
The phenomenon of extraordinary floating storage levels and the consequent skyrocketing charter rates, the collapse of the Cushing Oklahoma and oil inventory levels was a clear indicator of the imbalance in market fundamentals, affected by the overproduction of oil and lack of demand.
It was only the OPEC+ agreement of April 12th that allowed for a partial recovery of the oil market fundamentals, when 23 countries: Saudi Arabia, Russia, Iraq, United Arab Emirates, Kuwait, Nigeria, Kazakhstan, Angola, Algeria and Mexico, etc. agreed to extraordinary oil production cuts of 9.7 million barrels per day by May 1st and 7.7 million barrels per day as of August.
Under the undisputed leadership of Saudi Arabia and Russia, OPEC+ was able to agree to these extraordinary cuts and maintain its unity of purpose to recover and defend oil price. Only Iran, Libya and Venezuela did not accompany OPEC in the cutback effort. First, because of the sanctions’ effect, secondly, because of the civil war situation and third, due to its inability to manage its oil industry.
Since May 2020, OPEC+ has taken 8.85 million barrels per day off the market, for a cumulative total of 2,132.7 million barrels for 2020. The above has allowed a progressive recovery in oil prices, from their lowest level of 17 and -37 dollars per barrel for the Brent and WTI respectively, to the current levels of 51 and 48 dollars per barrel.
Although decisive, OPEC+’s performance also showed the changes in the world oil market from the producers’ side, including the weakness of OPEC itself.
In the face of the oil price crisis in 2008, caused by the real estate crisis that affected the US, OPEC was the only one to take on the production cut of 4.5 million barrels of oil per day, enough to stabilize the market. OPEC then had enough strength to regulate the market on its own. The US produced barely 5 million barrels a day, it was a net importer, while the Russian Federation produced only 9.9 million barrels a day. In those years, Russia and Saudi Arabia were not able to reach any agreement.
Thus, the market could only be balanced by closer cooperation between Russia and Saudi Arabia. Within OPEC, the situation has changed radically. Producing countries that were very important in 2008, such as Venezuela and Iran, are today diminishing in their position within the organization. With only 400,000 barrels a day of production, Venezuela has no say within OPEC, while Iran barely maintains its output at 1.9 million barrels a day, burdened by US sanctions. Qatar left OPEC in 2018 due to the conflict with the rest of the Gulf monarchies.
Other countries such as Algeria and Libya, which together with Venezuela and Iran were a counterweight to the Gulf monarchies’ positions within the organization, are experiencing severe internal problems that diminish the countries’ strength when it comes to decisions.
Today OPEC is an organization of some small, scattered oil producers. The Gulf monarchies exercised the organization’s hegemony that together, Saudi Arabia, Kuwait and the United Arab Emirates, produce, in November, 13.77 million barrels a day, 55% of the organization’s production.
On the demand side, closely linked to the economy’s performance, the market has been dramatically impacted by the Covid-19 pandemic and the restrictions on mobility, transport, travel, trade and economic activity especially among the large industrialized economies. With a global economic downturn of 4.4% (according to the IMF,21 and a 10 million barrel per day contraction in oil demand, the only economy that has managed to remain positive is China with growth close to 2.0% for this year 2020. Demand in Asia, led by China and India, has kept Brent prices always above WTI.
Because of its economic capabilities and how it has handled the Covid-19 pandemic, the region whose countries are leading the economic and demand recovery, is the Asian region. The new trade bloc, the Regional Comprehensive Economic Partnership (RCEP),22 gives the area the possibilities and extension of trade capable of leading the world economy’s recovery by 2021.
For the new American administration, the main challenge is to control the expansion of Covid-19 and recover its economy, which has been deeply affected by Covid-19 and the country’s political fracture that has resulted in its inability to manage the pandemic. We will have to wait until 2021 to be able to predict the future of the US oil industry, which was not only devastated by the collapse of the price of 2020 but also with the perspective of a Democratic administration more oriented to the concept of a green economy and the climate change agreements.
Europe faces 2021 with significant challenges, especially those derived from the impact of the Covid-19 and the completion of Brexit. The European Union is committed to a greener economy and has agreed on essential targets for reducing emissions into the environment by 2030. However, it assumes these goals when the world economy and the various geopolitical blocs are preparing for fierce competition to achieve economic recovery and restore supply chains to revive their industrial and economic capacities.
Venezuela continues to show a desolate panorama, not only in the political, economic and social spheres but also due to the collapse of its oil industry, the fundamental axis of the economy, which today seems to have been dismantled and has collapsed in its operational capacities. However, the country continues to have the largest oil reserves in the world of any nation.
With a severe legitimacy problem for the government and institutions, Venezuelan oil production has fallen to 400,000 barrels of oil per day, a loss of 2.648 million barrels of oil per day from its production levels of 3.015 billion barrels of oil per day in December 2013. Current oil production levels are the same as the country had in 1930, a 90-year decline.
The oil infrastructure has been abandoned and dismantled by a military administration of the company’s and successive directions of the oil sector that have demonstrated an absolute inability to manage both the national oil company PDVSA and the subsidiaries and joint ventures with international oil companies. Today, the national refining system, with an installed capacity of 1.3 million barrels per day, operates at only 10% of its capacity,24 incapable of supplying fuel to the domestic market. Gas production and processing facilities for domestic consumption are equally collapsed, so the population has to use firewood.
Since 2014, the national oil company, PDVSA, has been subject to a process of political persecution against its management and technical staff. The cases of 110 workers who have been imprisoned since 2005, and remained in prison since, without trial, are documented. In this political persecution and militarization environment, more than 30 thousand workers and engineers have left PDVSA since 2016-2017.
The government cannot articulate any plan for the recovery of the company or its productive capacities. The fundamental problem is that it repeatedly lies about the causes of the terrible crisis facing the sector. It speaks of drone attacks, terrorist attacks, the infiltration of foreign agents, and sanctions as the causes of the industry’s severe problems. He is not capable of assuming mistakes, nor of presenting proposals. Workers and union leaders are put in prison for denouncing the deterioration of working and living conditions of workers as well as the industry.
The government has extended the powers of the last intervention commission of the company appointed in February, also presided over by oil minister, Tareck El Aissami, who has been issued an arrest warrant and a reward from the US government,25 who accuses him of drug trafficking crimes.
With express instructions to privatize oil, this Commission received an order for production of 700 thousand barrels of oil per day in February 2020 from General Manuel Quevedo, former president of the company and responsible for losing 2,315 million barrels of oil per day. There is no accountability, nor response to the continued and sustained deterioration of the country’s primary industry, turned into ruins by an incapable administration.
Although the government has violated its own Constitution and the legal framework for hydrocarbons, it now intends to disregard the laws about this country’s strategic sector with the so-called Anti-Blockade Law, which was approved without discussion the National Constituent Assembly last October 2020.
The collapse of the oil industry and the company’s mismanagement have left PDVSA without the capacity to respond to the sanctions imposed by the US on the company in 2019. They have aggravated the company’s problems, are neither the origin nor the cause of the problem.
The prospects for 2021 are all uncertain for Venezuela and its oil sector, which, far from having problems of exhaustion of deposits or extraordinary technical complexities, is directly affected by the political crisis and the absence of leadership capabilities of the government.
Crude oil prices closed the year on a high, reaching their highest prices after the market collapse began in March, driven by the start of mass vaccinations on December 16th against COVID-19, in the US, UK, Russia and Europe. The arrival of the vaccine is a factor, at least in large developed economies, in starting the expected process of immunization, recovery of mobility and economic activity.
On Tuesday, December 30th, the Brent and WTI markers were quoted at 51.39 and 48.40 dollars a barrel. The above is a recovery of 33% and 78%, compared to March 6th, after the failure of the OPEC+ meeting and the beginning of the «price war» between Russia and Saudi Arabia. All of the above coincided with the collapse of oil demand caused by the pandemic.
Oil Prices 2020
The price rise is confirmed by the US Energy Information Administration’s data, published on December 23rd, which shows a fall of 3.1 million barrels in commercial crude oil stocks in the US. It is the largest drop since August 28th, which coincides with the fall of the US currency to a two-year low.
On the other hand, OPEC+’s decision on December 3rd, to delay the relaxation of production cuts in January 2021, favored the market’s prospects.
Although the vaccination process began on December 16th in large world economies, there is still much uncertainty in the market about the new phase that is beginning. On December 23rd, prices fell by 4% from the maximum peak registered previously, when UK authorities confirmed the new Coronavirus strain was more contagious than the already known ones.
However, despite this information and the vaccine distribution’s complexity, what is important is that this process has already started. It opens clear perspectives for the possibility of standardization of mobilization and transportation activities, allowing countries to recover their normal economic activity and the recovery of oil demands.
The entire year of 2021 will be a year of recovery and adjustments that will consolidate the recovery of market fundamentals and crude oil prices, with the correct management of oil supply levels.
According to the OPEC report30 of last December 14th, the differential between Brent and WTI widened in November by 33.7%, compared to October, to reach 2.63 dollars per barrel. The estimated average price of both Brent and WTI for 2020 will be 30% below the average recorded in 2019.
The significant differential shows the recovery of Brent respect to WTI, as the former favored by the increase in demand in Asia and the Pacific. On the other hand, WTI’s growth has been affected by some rallies in December of the crude inventories in the US.
Despite two consecutive months of losses, the November average for the OPEC basket increased 6.3% to $42.61 per barrel, a 97% increase over its March average of $21.61 per barrel.
OPEC estimates that the average basket for 2020 will be $40.75 per barrel, a 36% reduction from the 2019 average.
Among the thirteen crude oils that make up the OPEC basket, Murban crude from the Arab Emirates will have the highest average in 2020 with 42.38 dollars a barrel. The average Merey oil will be below the other crudes with 27.70 dollars a barrel, a contraction of 49% compared to the 2019 average.
By Thursday, December 17th, according to the latest information available this year, the OPEC basket averaged $50.78 a barrel.
PRICE OF THE OPEP BASKET
The year 2020 began with a world oil production that exceeded the 2019 levels by more than 600 thousand barrels per day, registering in January 94.1 million barrels per day (MMBD). Adjusting the OPEC data throughout 2020, the months following January experienced the effects of the blockade on Libya’s oil fields and the constant drop in production in Venezuela, while US production reached record levels of 13 million barrels per day (MMBD) in February 2020.
On the other hand, Saudi Arabia, while engaged in a «price war» with Russia in the first quarter of the year, recorded its highest production since 2018, reaching its historical maximum of 11.55 MMBD in April. The UAE and Kuwait accompanied the Saudi Kingdom, increasing their output to 3.8 and 3.1 million barrels per day in April 2020. The Russian Federation recorded 10.45 million barrels per day in the same period, with the world oil production fluctuating between 93.5 and 93.9 MMBD between February and April.
Once the 9.9 million barrel OPEC+ day oil cuts took effect on May 1st, 2020, oil production fell from 83.34 MMBD in May to its lowest value for the year of 80.36 MMBD in June.34
After the «flexibilization» of OPEC+ cuts came into effect in August, world oil production increased to 86.54 MMBD in November.
WORLD OIL PRODUCTION
(January – November 2020)
The behavior of the world’s leading oil producers -the US, Saudi Arabia and Russia- between January and April 2020, together with the appearance of the COVID-19 virus and the declaration of a pandemic in March of this year, generated a collapse in demand and a marked over-supply in the oil market, which caused oil prices to plummet.
Faced with the prospect of total collapse, the OPEC+ countries that signed the DoC, agreed to a production cut on April 12th with different stages. These began on May 1st with a production cut of 9.7 MMBD, extended until July, and then relaxed by 7.7 MMBD from August until December 31st, 2020. At the OPEC+ ministers’ meeting in early December, reported that 500 thousand barrels per day would be cut in addition to the 5.8 MMBD cut.
The OPEC Monthly Report (MORM) published on December 14th, reported that world oil production in November was 86.54 MMBD, an increase of 1.34 MMBD over the previous month, representing a 1.6% inter-monthly increase.
Of this production, the DoC signatory countries gathered as OPEC+, accounted for 37.8 MMBD, 43.7% of world oil production.
WORLD OIL PRODUCTION 2020
(January – November)
Two factors influenced the increase in world oil production in November: the resumption of operations in the Libyan oil fields and the end of hurricane season in the Gulf of Mexico. The latter allowed an increase of 400 thousand barrels per day in the US, for a total of 0.95 MMBD between OPEC and the North American countries.
In November, OPEC reflected an increase in its oil production of 550,000 barrels per day, mainly due to the remarkable recovery of 656,000 barrels per day in Libya’s production that month.
INCREASE IN WORLD PRODUCTION
The International Energy Agency (IEA), in its last report, reflects a 1.5 MMBD inter-monthly growth in world oil production for November, slightly higher than the figure presented by OPEC of 1.36 MMBD, to place it at 92.7 MMBD of oil. The US Energy Information Administration (EIA), estimates the same growth in 1.8 MMBD and world production of 93.45 MMBD.
By 2021, the IEA estimates that oil production will grow by 5.7 MMBD compared to 2020, 600 MBD more than the 5.1 MMBD volume forecast by OPEC.
For its part, the EIA projects a year-on-year increase of 3.2 MMBD for 2021, warning of a drop in US production for March and April of next year, placing it below the 11 MMBD of oil. At the same time, OPEC’s production projection for the first quarter of 2021 was raised from 27.5 MMBD to 25.7 MMBD of oil, estimating that its production will increase by 100 thousand barrels for 2020, which in turn means an increase of 1.2 MMBD over the level registered in November of this year.
The group of DoC signatory countries united as OPEC+, reached in November, a production of 37.8 MMBD, 550 thousand barrels more than in October, of which 25.1 MMBD were from OPEC and the remaining 12.7 MMBD from the nine non-OPEC countries.
The production by OPEC+ countries reflects a decrease of 7 MMBD compared to January 2020 (including Mexico’s output). It registered 44.8 MMBD, of which 28.4 MMBD was from OPEC and 16.4 MMBD from the nine non-OPEC countries plus Mexico.
OPEC+’s peak production in 2020 occurred in April, when it registered 46.6 MMBD of oil, corresponding to 30.5 MMBD for OPEC and 16.1 MMBD for non-OPEC countries.
Since the group’s production cut began, Libya, one of the three countries that were exempted from such, was the producing nation that had the most significant increase in its output. They reached the last quarter of 2020 more than 900 thousand barrels of oil per day, recording production of 1.08 MMBD in November of this year.
The most notable inter-monthly production increases in November were seen in Libya, with 656,000 barrels a day more than the previous month, and the United Arab Emirates, with 75,000 barrels a day more than in October. On the other hand, Iraq registered a monthly decrease of 76 thousand barrels a day in its production and Russia 60 thousand barrels a day. The rest of the OPEC+ countries were within their production average for the last three months.
OIL PRODUCTION OF OPEP+ COUNTRIES
The group of OPEC-10 (Algeria, Angola, Congo, Equatorial Guinea, Gabon, Saudi Arabia, Kuwait, Iraq, Nigeria and the United Arab Emirates), members that agreed to cut their production, are the main factor in world supply. Last November, they reached 21,608 MMBD, representing 57.2% of OPEC+ total output and 24.7% of world production.
For their part, the nine non-OPEC countries that are part of OPEC+ (Azerbaijan, Bahrain, Brunei, Kazakhstan, Malaysia, Oman, Russia, Sudan and Southern Sudan), had a production of 12.7 MMBD of oil, 33.6% of the OPEC+ output and 14.5% of world production.
The three OPEC out of the production cuts (Iran, Libya and Venezuela), had a joint production of 3.5 MBD in November, with Iran producing 1,986 MMBD, Libya having an output of 1,108 MMBD and Venezuela, sunk in its severe political and institutional problems, with only 407 MBD. In November, these three countries represented 9.2% of OPEC+ production and 4% of world production.
PRODUCTION CUT IN OPEC+
Of the 37.8 MMBD produced by OPEC+ for November 2020, 34,308 corresponded to the OPEC-10 countries and the nine non-OPEC countries that agreed to cut their production. This cut 7,796 MMBD from their base production, complying with 101.5% of the daily cut agreement corresponding to August-December 2020, and agreed to on April 12th of this year, then modified in June. Between May and July 2020, the group’s production cut quota was 9.7 MMBD of oil.
COMPLIANCE WITH THE PRODUCTION CUT IN THE OPP+
For the OPEC-10 in November, the production cut was 5,075 MMBD, fulfilling 106% of its commitment to OPEC+.
The fulfilment of the nine non-OPEC countries’ production cut was 96.5%, with 2,717 MMBD in November. For the fourth consecutive month, Russia presented an overproduction of more than 100 thousand oil barrels per day -despite having lowered its production to October-fulfilling its cut quota by 94%.
Libya began the year 2020 by maintaining the level of operations and oil activity that led it to have 1.1 MMBD of production in 2019. However, on January 22nd of this year, the Libyan National Army, led by Marshal Khalifa Haftar, representing the Eastern Parliament in Tobruk, blocked operations in oil fields and terminals, Libyan production registered 800 MBD in January 2020.
Afterwards, Libya’s oil production fell sharply to levels below 100,000 barrels per day between March and June. After eight months, on September 18th, Haftar announced an agreement with Tripoli’s government and the cessation of the blockade of oil areas and terminals. On October 23rd, was declared the ceasefire agreement.
On October 26th, the National Oil and Gas Corporation of Libya (NOC) announced the end of blockades in all oil fields and ports in the country and the beginning of production in the Al-Feel field. The Al Sharara field, the largest in Libya, had already restarted operations on October 11th, while the ports of Zuletina, Sidra and Ras Lanuf were operational as of October 23rd.
Therefore, for November, Libya’s production was 1,106 MMBD, reflecting an increase of 656 thousand barrels per day of oil compared to October, 953 thousand barrels per day more than in September and 310 thousand barrels per day more than in January.
The recovery of 25 thousand barrels per day of production in the Mabruk oil field, attacked during the military intervention of 2015, as well as the reactivation of production in the North Gialo, Dhara Jofra and Gialo Tres fields, of which NOC and the French TOTAL expect production of 300 thousand barrels per day of oil, could bring Libya’s production to 1.5 MMBD for January.
US production maintains the stability achieved four weeks ago, after reaching 11 MMBD of oil, a drop of 2 million barrels per day from its maximum production levels of 13 million barrels per day in April.
In the US Energy Information Administration’s (EIA) weekly report of December 23rd, for the week of December 18th, production was 11.05 MMBD, 100 thousand barrels less than the week of December 6th and remains within the estimated level for the rest of 2020 and 2021.
USA OIL PRODUCTION
US Drilling Activity
Drilling activity showed a new rise, with a thirteen-week increasing: 264 drills as of December 23rd, the highest value in 7 months, the same amount of operative drills registered last May 15th, and 613 less than January 4th of this year, when operations were reported in 877 drills, according to Baker & Hughes publications.
DRILLING ACTIVITY IN THE US.
The Norwegian energy research agency, Rystad Energy, warns43 about the possibility that US oil companies that joined Chapter 11 of the Bankruptcy Act will lose part of their production by filing for bankruptcy or requesting restructuring 2021.
The agency estimates that companies’ exploration and production under Chapter 11 operate a current production of 800 MBD at Eagle Ford, Bakken and Permian, among several fields. Also, they will probably lose 25% of their production by the end of 2021, about 200 thousand barrels of oil per day, without the capacity to be compensated. For Rystad Energy, it is unlikely that the restructured companies «will return with significant increases in capital investment before the second half of 2021.
During 2020, the pandemic has led the world economy into one of the worst recessions in history, with no clear indication of when a recovery will occur.
When the spread of COVID-19 was declared a pandemic in March, many countries had to isolate themselves and confine their populations for several months during the second quarter of 2020, significantly reducing their economic activity. Intermittent closures and partial mobility during the last six months relaxed restrictions somewhat, but not in a way that would allow the world economies to recover.
The International Monetary Fund (IMF) predicted that the world economy could contract by 4.4% in 2020, and then recover to 5.2% growth in 2021. By 2020 the performance of the world’s largest economies has been profoundly affected by COVID-19: USA. – 4.3%, United Kingdom -9.8%, European Union -7.1%. Only China has shown positive values, with 1.9% growth in GDP, reaffirming its strength and leadership in the Asian region, where there has been a better economic performance than in the rest of the world.
Although all analysts expected a recovery in the world economy for the third and fourth quarters of the year, it did not happen. The arrival of the second wave of the coronavirus hitting the European countries and the United Kingdom, in addition to the pandemic’s uncontrolled advance in the US, delayed everything.
In addition to the fall in GDPs, the economic recession caused by the pandemic resulted in higher unemployment worldwide (7.9% estimated, in the absence of data from many developing countries), well above 2019 (5.4%), and even exceeding what was registred after the global financial crisis of the past decade (6.6% at the end of 2009). According to the same IMF, although governments have increased public spending to protect companies and jobs, subsidized employment to maintain domestic purchasing power and spending worldwide totaled $12 trillion.
According to World Economic Forum experts, such levels of spending have brought the global public debt to a historic high of $277 trillion (365% of global GDP), in a context where more resources will be needed to alleviate the socio-economic problems resulting from the pandemic.
Central banks in more developed economies, including the US Federal Reserve and the European Central Bank, have increased their purchases of assets to inject more money into the financial system while cutting and stabilizing interest rates. Other central banks in emerging countries have also adopted these measures.
While progress with coronavirus vaccines has improved economic prospects, their distribution and, above all, their non-immediate arrival in developing countries, could slow the return of global production activity to pre-pandemic levels. However, it is expected that 2021 will be a year of improvement, with 2022 as a more feasible and stable recovery horizon.
USA: New economic stimulus package approved
A second, less far-reaching stimulus bill than the one passed last March was passed by Congress during the night of Sunday, December 20th. Congressmen in Washington concluded negotiations on a new $900 billion economic aid package for US citizens. Instead of a $1,200 payment, it will be $600 per person, given the insufficient resources to cover all applicants for such assistance.
The bipartisan negotiators approved the package both in the House of Representatives and the Senate. It was ready for signing by President Donald Trump, who expressed his reservation to sign under the negotiated terms.
That’s why the House of Congress approved last Monday night to increase the size of individual stimulus checks from $600 to $2,000, giving in to the demand presented by Trump to approve the aid package. A second, smaller stimulus check was a way to keep the total cost of the deal below the $1 trillion limits set by Republican lawmakers at the start of negotiations.
But it is not clear whether the Senate will consider such a measure. Senate Republicans have been reluctant to increase payments, citing concerns about the federal budget deficit.
The corresponding bill was expected to be approved by the Senate on Tuesday. But Republicans blocked a quick vote proposed by Democrats, divided within their ranks on whether to push for spending or challenge the White House, since many have said they will support the increase, most of their Republican senators oppose further expenditures. Deliberations will continue on Wednesday, December 30th.
EU: extension of the bond program and downward inflation targets
The President of the European Central Bank (ECB), Christine Lagarde, announced a nine-month extension of the anti-pandemic bond program for 500 billion euros (610 billion dollars), in addition to more long-term bank financing.
Such adjustment announcements considered limited by investors as they were presented along with an inflation estimate for 2023 of only 1.4%, the lowest three-year forecast ever made by the ECB. Thus, these measures set an inflation target far below past projections of just under 2%.
Eurozone inflation projection
The above could mean a risk of falling into deflation, a decline in prices with adverse effects on aggregate supply, which would weaken domestic demand and negatively affect the room to maneuver in job recovery.
The ECB projects that inflation will be far from its target until at least 2023. Their mandate to achieve price stability with annual inflation below but close to 2% in the medium term, was designed for an era of greater productive dynamism, in which prices were more likely to rise too quickly rather than vice versa. But since the global financial crisis more than a decade ago, the EU has suffered the effects of too low inflation, with the ECB failing to meet its inflationary targets.
Variation of the Euro to the US Dollar
The expectations of recovery in Germany and France and the Brexit negotiations’ agreement keep the euro above 1.22 dollars. This value was reached in recent days (16/12/2020), for the first time since April 2018.
EU-UK Brexit Agreement
Negotiations for a post-Brexit agreement between the UK and the EU on trade and other issues are ready a week before the transition period ends. In this way, both actors avoid a Brexit without an agreement amid the pandemic and shape what will be a new era after more than 40 years of UK membership of the European Union.
The Brexit process begins on January 31st, 2020, with the United Kingdom’s formal announcement to leave the European Union. In this regard, new joint rules on trade in goods and services, tariffs, cross-border movements and other policies, must be reached before December 31st of this year, when the current agreement expires. All the above, to avoid operating with the EU under the World Trade Organization rules, that would have meant re-introducing taxes on goods traded between the two.
The negotiations involved trade (the EU accounted for 43% of the UK’s exports in 2019 and 51% of its imports) and included other elements such as education and cooperation in police and security matters.
One of the hottest points of discussion that has advanced is that of Northern Ireland, the only part of the United Kingdom with a land border with the EU through the Republic of Ireland, after establishing that it will maintain its current status.
Some of the agreed aspects from the complex agreement reached are the following:
- Fishing: the value of the fish caught by the EU in UK waters will be reduced by 25%, much less than initially requested by the British (80%). The cut will be introduced gradually over a transition period lasting five and a half years. Once the transition period is over, the UK will fully control access to its waters and could make much deeper cuts.
- Competition policy: the UK is committed to adhering to standard principles on state aid schemes and being assessed by an independent competition policy agency.
- Dispute resolution: if either party departs from the standard rules that exist as of December 31st, 2020, with a negative impact on the other party, a dispute mechanism would be activated, which could result in the imposition of tariffs. There will be a binding arbitration system involving officials from both sides.
- Court of Justice of the European Union: The EU has abandoned its demand that the Court of Justice plays a direct role in monitoring the agreement’s governance in the future. However, in the case of Northern Ireland, it will continue to be subject to the EU single market and customs union rules. The above means that the European Court will continue to be the ultimate legal authority for some disputes in one part of the UK, given the UK’s special status under the agreement’s terms.
- Transit of people and mobility: within six months, UK citizens will need a visa to stay in the EU for more than 90 days. Regarding the European Health Insurance Card, the single document for EU public health access will remain valid for British citizens until its expiry. They also agreed to cooperate on international mobile roaming, but there is nothing in the agreement to prevent UK travellers from being charged for using their phone in the EU and vice versa. Additionally, UK citizens will not need an international license to drive in the EU.
- Financial services: the UK will continue to wait for the EU to issue an equivalence decision on financial services, but service companies, in general, have not received as much consideration in this agreement as the British government had been asking. The access that British companies had to the EU’s single market is practically over.
- Data protection and privacy: the EU has agreed on a period of four months, (extendable by two additional months), to maintain the exchange of data on individuals and companies with the UK under existing conditions, provided that the latter makes changes to its rules on data protection.
- Conformity standards on goods: without an agreed framework yet, so new barriers to trade are expected, following the establishment of new standards in the UK. The above implies that the same product from an EU country will have to comply with EU and UK guidelines to export to other EU countries and the UK. There is also no consensus on recognizing sanitary and phytosanitary standards for exporting food of animal origin, which means that there will be more complex and costly controls for products entering the EU single market.
- Professional qualifications: UK professional qualifications will not be recognized automatically throughout the EU. There is only a framework in the agreement to acknowledge mutually individual qualifications but subject to certification, detracting from the current status.
- Security: the UK will lose automatic access to specific EU police databases (criminal records, for example), but will still have access to the system that checks fingerprints across the continent. Other data, such as the flights people take will be available under much stricter conditions. New terms for extraditions, the United Kingdom’s role as an observer in Europol and disagreements about the data to be processed by a new committee are part of the new elements. In short, the speed the UK obtains important security data and the influence it has on decisions, will be reduced.
The immediate and effective implementation of the agreement is still a matter of discussion. Many EU countries are concerned about the future commercial impact of possible UK free trade agreements with countries like the United States. Products with more advantageous conditions could access the common European market, thus evading the tariff and quantitative restrictions that the EU has with the Americans.
On the other hand, Brexit supporters argue that leaving the EU will give them more freedom to reach trade agreements worldwide. They are currently in talks with the US and Australia with whom the EU has no free trade agreements, although none of these trade agreements has concluded. While a member of the EU, it was part of more than 70 EU trade agreements. Since leaving the European bloc, it has concluded free trade agreements with more than 50 countries to continue trading in the same way.
By the end of 2020, the Covid-19 pandemic has grown from 81.4 million infected people to 1.8 million dead worldwide, while 46 million people have already recovered.
The figures for the countries with the highest infection rates as of 12/30/2020 are as follows:
Since December 10th, Germany entered a national blockade that closed schools and non-essential businesses until January 10th, 2021, while the country struggles against an increasing number of infections and deaths. Similar measures have been taken in Italy and Spain given the increase in infections and deaths in the last two months of the year.
In the United Kingdom, a variant of the virus was found faster and more aggressive in its transmission. Prime Minister Boris Johnson ordered a shutdown in London and most southeast England, reversing a plan to ease restrictions over Christmas was announced a few days earlier. These measures are the most severe since the closure imposed in March, given the concern that the new variant may overfeed the virus’s transmission as it takes over the winter.
As a result of this finding, last week, European countries began to close their borders to travelers from the United Kingdom. However, the World Health Organization’s (WHO) regional director for Europe, Hans Kluge, reported a new variant of the virus in eight European countries this week.
In France, it was reported on Thursday, December 17th, that President Emmanuel Macron tested positive for COVID-19, and placed in solitary confinement for a week. This week, the French national health council, headed by Macron, would be considering imposing the blockade restrictions again for the third time amid concerns about an increase in Covid-19 cases.
According to the White House advisor on COVID-19, Dr Anthony Fauci, the United States could return to normal by mid-fall 2021, if 75 to 85 per cent of the population is vaccinated. To date, one million people in the country have received the first dose of the vaccine, a number considerably lower than federal officials initially expected. This month, the country surpassed the threshold of 330,000 thousand deaths from the virus, one hundred thousand more than Brazil, the second country in the number of deaths. On Wednesday, December 16th, it was registered a record number of 3,580 deaths in 24 hours.
Vaccines in development and their eventual availability
Last week, the Food and Drug Administration (FDA), the US health authority, authorized Pfizer and its German partner BioNTech to make their vaccine available nationwide. On Friday 18th, Moderna received the authorization from the mentioned entity to commercialize theirs.
On the other hand, the European Union authorized mass vaccination in its member states from December 27th, using the Pfizer/BioNTech vaccine. Thus, the EU would follow the United Kingdom and the United States in being the first Western countries to apply COVID-19 vaccines massively.
On December 8th, the first vaccine was supplied in the United Kingdom, starting massive vaccination in the referred country, Europe, and the USA.
While COVID-19 vaccines are already in a development phase that gives hope for a solution to curb the pandemic in the short term, their availability to all countries is relative.
The most developed countries, home to many of the laboratories that manufacture these drugs, have secured for themselves a number of doses that, in some cases, are several times higher than the population itself.
On the other hand, developing countries, which are net importers of vaccines, would not have access to their citizens’ necessary doses. In this way, the pandemic’s global treatment would be tremendously uneven, as the developing world would not have the required stocks of vaccines in the time needed to immunize its citizens, and thus be able to normalize daily life and productive activities.
During his Christmas Day speech, Pope Francis called for an equitable distribution of COVID-19 vaccines, as they «are a cause for hope», but that they need to be available to all countries and people.
NUMBER OF PURCHASED AND POTENTIAL VACCINATION DOSES
(in millions of doses)
POST COVID-19 ECONOMY
EU agrees on ambitious emission reduction plan for 2030
The European Union’s ministers of the environment agreed on December 17th, to reduce net emissions of greenhouse gases by at least 55% by 2030, from 1990 levels. This is an ambitious increase from the previously established objective that contemplated reducing 40% of these gases.
Thus, the European Council (the grouping of EU governments), established its position in contrast to the European Parliament (the legislative body), which in October this year would have set a reduction target of 60% by 2030, also contemplating the creation of an independent body to monitor these policies.
The Council and Parliament, together with the European Commission (the executive body), will hold talks in the coming weeks – or months – to find a consensus on the issue. The only point in common so far is that of zero net emissions by 2050.
In this way, the European Union continues to modify its Member States’ energy matrix by reducing their dependence on hydrocarbons while contributing to reducing emissions, in a context where the United States is about to return to the Paris Agreement on Climate Change.
For the scientific community, the European Commission’s objective is the minimum effort needed to be able to move towards climate neutrality (minimization of carbon dioxide emissions) by 2050. For activists, the agreement is not enough. It states that to stop the temperature increase to 1.5°C as established in the Paris Agreement, the European Union should reduce emissions by 65% by 2030.
In this way, the European Union joins China and Japan’s initiatives to commit their countries in this direction.
During last September’s United Nations General Assembly, the President of the People’s Republic of China, Xi Jinping, announced that his country would increase its National Determined Contributions (specific country commitments to reduce greenhouse gas emissions). China will adopt policies and measures to significantly decrease carbon dioxide emissions by 2030 and emissions neutrality by 2060.
For its part, through the Japanese Prime Minister Suga Yoshihide, Japan announced in October this year the commitment to reach zero net emissions by 2050.
Biden elects Jennifer Granholm as his Energy Secretary
Joe Biden will appoint Jennifer Granholm, former governor of Michigan for two terms, to head the US Department of Energy.
First woman governor of Michigan, where she served from 2003 to 2011, where she supported laws that promoted energy efficiency, helped transform the state’s economy and took a stand on the environment and climate change. Previously, she served as Michigan’s Attorney General from 1999 to 2003. She has a degree in political science and a PhD in law and is a researcher and policy expert on renewable energy from the University of California, Berkeley. Included in Biden’s energy plan guidelines, the idea of «driving a 100% clean energy economy, so that the United States achieves zero net emissions by 2050» and for «a historic investment in clean energy and climate research and innovation.
This plan, together with Granholm’s appointment and the return of the US to the Paris Agreement, would put the country on a similar path as the European Union, displacing hydrocarbons as the primary source of energy, which in the long term will have a significant impact on the global demand for them.
New United States Trade Representative
President-elect Joe Biden nominated Katherine Tai to become the United States Trade Representative (USTR), the highest international trade authority.
Tai, 45, was born in Connecticut and raised in Washington, DC. He is the descendant of parents born in mainland China, who later lived in Taiwan before moving to the United States in the 1960s as graduate students in the sciences.
A graduate of Yale and Harvard, since 2017 she has served as a senior business advisor on international trade issues to the House of Representatives’ Committee on Media and Taxation. Previously, she was with the USTR Office of Legal Counsel as senior advisor on trade compliance with China to the World Trade Organization (WTO). From 1996 to 1998, she lived and worked in Guangzhou, China, teaching English at Zhongshan University as a Yale-China scholar.
Given the current tension in the commercial relationship between the United States and the Asian nation, an appointment such as Tai’s, World Trade Organization representative, is very striking, given her technical profile, specialized in multilateral commercial affairs.
The United States could play again by the rules of this organization, and also, the trade war with China could be handled in a more diplomatic and bearable manner for both sides.
The year 2020 has been marked by the collapse of world demand for oil since March when the Covid-19 pandemic started, and the virus began its violent expansion, mainly affecting the large industrialized economies of Europe, Asia and the United States.
At the end of 2019, world oil demand was 101.23 million barrels per day. After March, in the first and second quarter of the year, the brutal economic slowdown, caused by massive mobility restrictions and the cessation of air transport in the world, caused a drop in demand to levels never seen before due to its magnitude.
During the first and second quarter of the year, demand fell by 84.94 and 93.53 million barrels per day, in a scenario of oil over-supply that characterized the first quarter of the year, caused inventories to build up to extraordinary levels and the collapse of oil prices.
It was not until OPEC+ agreed on the massive production cuts in April, effective May 1st, that market fundamentals began to stabilize.
WORLD DEMAND FOR OIL
(January 2019 – November 2020)
Despite the extraordinary effort made by OPEC+ to reduce oil supply, the market will not achieve total stabilization until oil demand is restored to comfortable levels, which will happen only as the world economy recovers, once Covid-19 is surpassed or controlled.
The various financial operators expected this recovery process to start from the second quarter of the year. However, the «second wave» of the Covid-19, dashed these hopes in the face of new measures to restrict roads and activities imposed in Europe and other countries.
However, OPEC and several other agencies estimate that oil demand will recover reasonably by 2021, but still below the demand levels observed at the beginning of the year. Some analysts even estimate that such demand levels of 101.23 million barrels per day will not be seen again in the oil market, a prediction that underestimates the needs for access to cheap energy that the economy will have in its face recovery process.
China and the Asian economies’ response is in that direction, in the global competition to recover markets through supply chains, commercial exchange, and industrial activity. The regional block is at the forefront of the recovery of the oil demand, as it requires more significant volumes of oil and product for its reactivation process.
At the close of 2020, OPEC in its MOMR of last December 14th estimates that the average demand for the year will be 89.99 million barrels per day, a drop of 11% concerning demand in 2019, while for 2021 it estimates a significant recovery of 6% to 95.89 million barrels per day of oil, still 5.57% below demand in 2019.
GLOBAL DEMAND ESTIMATES OIL
For the Energy Information Administration (EIA) in its December Short Term Energy Outlook report, demand increased in November to 93.5 million barrels per day. The average demand for 2020 is down to 92.38 million barrels per day from the organization’s November projections. For 2021 the EIA estimates a significant recovery of 3.07 million barrels a day of demand to reach 98.16 million barrels a day, still 3% below the demand of 2019.
The December report of the International Energy Agency (IEA), forecasts world oil demand at 90.96 million barrels by 2020, while reducing its estimates to 96.66 million barrels per day consumption by 2021, 4.51% below consumption in 2019.
By the second quarter of 2021 is expected that Europe will have a significant rebound according to OPEC projections, which estimates an increase in industrial fuel consumption, a product of the region’s measures to revive the economy, mainly in Germany, France and Spain.
VARIATION IN OIL DEMAND IN OECD COUNTRIES
Asia – Pacific
The slight stabilization of oil consumption in the third and fourth quarters of 2020 is concentrated in China, due to its rapid recovery in managing the pandemic and reviving its industrial activity. According to IEA estimates, growth in the country will be 0.7 million barrels per day during this period.
On the other hand, OPEC emphasizes that China will continue its positive evolution in favor of demand, massive imports of «cheap oil» between May and July, which had its peak in June with 13 million barrels per day, will remain to a lesser extent. Based on a recovery in consumption, the Chinese economy has shown a performance of 5% in the last quarter of the year, driven by the fiscal and monetary stimuli implemented by the Asian nation.
According to the National Bureau of Statistics of China, crude oil imports in November increased by 1.02 MMBD compared to the previous month, remaining at 11.08 MBD, for a total supply of 14.98 MMBD.
OIL IMPORTS BY CHINA
(March – November 2020)
According to the EIA’s weekly report, as of December 23rd, oil imports increased from the previous week to 5.7 million barrels per day, after peaking in the first week of December at 6.4 million barrels per day, similar to the levels the US was importing until June 2020.
Despite the upturn in December, oil imports have dropped considerably in 2020, concerning the January average of 6.6 million barrels, which at the time of the last report would be a reduction of 13%, and 16% less than the same date in 2019.
US OIL IMPORTS
(2018 – 2020)
The 1.85 million barrel per day reduction in imports coincides with a 0.8% drop in the country’s refining activities last week. The percentage of refining activities went from 94.5% at the end of 2019 to 78% in the third week of December, given production’s fall in this country and at the same time, a reduction in fuel consumption.
The collapse of oil demand and the overproduction of oil observed since March 2020 had its most direct indicator in the increase of commercial inventories of crude and product observed during the first two quarters of the year.
Storage levels in both the US and the rest of the OECD countries showed extraordinary levels, reaching 1,453 and 3,204 million barrels per day, above the 2019 average, which is higher than the average for the last five years, as well as 42 and 77 days of coverage respectively.
Added to this are the commercial inventories and strategic reserves of China and India, making massive acquisitions of cheap oil in anticipation of a better price scenario. Although it is tough to obtain available information on inventory levels in China, higher import levels during the first and second quarters of the year give an idea of the amount of inventory built, as well as the fact that port logistics in China collapsed, causing the suspension of import permits to the country’s private refiners.
The whole year of 2020 was marked by a price structure in Contango, which reflected the market situation.
This situation’s high point was observed in April when the Cushing Oklahoma reached storage levels of 83% of its operating capacity. At this moment traders and holders of futures contracts decided massively on forward contracts, in order not to incur in over-storage costs and run out of options to place the crude oil, which caused the WTI marker to trade, for the first time in history at negative values of -36 dollars a barrel.
WEEKLY US INVENTORY
CUSHING OKLAHOMA (2015-2020)
The DOE’s decision to open the strategic reserves to receive crude from national production and the federal order to acquire storage where possible managed to revert and maintain the storage at full capacity without repeating the phenomenon of negative quotations.
Another element that extraordinarily reflected the imbalance and collapse of the oil market was the number of floating storage. It is estimated that for the first and second quarters, there were 178.8 million barrels of oil stored in VLCCs, which triggered transport rates.
FLOATING STORAGE VOLUME
One of OPEC+ implemented cuts policy since May of this year, has been the drainage of inventories. By reducing supply and lowering demand, it is expected that the levels of crude and product inventories will begin to fall to levels within the average of the last five years.
In this way, it reduces the speculation capacity of traders and operators who can manipulate crude oil prices by liquidating stocks acquired at low prices.
This strategy’s first tangible success was the drastic reduction of floating stocks and then the gradual decrease of commercial inventories both in the US and in the rest of the OECD countries.
Inventories in OECD countries peaked in the second quarter, and although they have declined, they are still well above the five-year average. In the EIA report, Short Term Energy Outlook69, inventories fell in the third quarter to 3,156 million barrels and are estimated to increase for the fourth quarter by 5% to 3006 million barrels.
OECD OIL INVENTORIES
(2015 – 2020)
Inventories will continue their downward trend until the end of 2020 and will continue in 2021, reaching approximately 2.91 billion barrels at the end of that year. According to EIA estimates, the OPEC+ decision will favor the drainage of inventories worldwide. However, the surplus will continue for 2021, according to estimates by the IEA, it will be 625 thousand barrels higher than at the end of 2019, and they affirm that by the end of 2021, it will become a deficit.
In 2020, crude oil storage in the United States showed a significant increase to levels above the average for the last five years, reaching a maximum of 540 million barrels in June. However, the latest report by the Energy Information Administration (EIA), as of December 23rd, showed a rebound in US inventories to 499,534 million barrels, 7.49% lower than the record for June, but 13% higher than that recorded in the same date in 2019.
For eleven consecutive weeks, crude oil storage in the US fell to an average of 484 million barrels as of October 30th. This trend continued throughout November and favored the increase in prices.
Oil inventories began to drain on August 21st, in light of the Gulf of Mexico weather events and the global reduction in oil supply.
US COMMERCIAL OIL INVENTORY
(2018 – 2020)
Despite this significant downward trend, they never marked records similar to the storage before Covid-19.
In the case of US strategic reserves, they increased between April and August, from 634 to 656 million barrels, in a period of low oil prices, a behavior that was reversed at the end of August with a reduction of 3%, currently at 638 million barrels as of December 23rd, according to the EIA report.
US STRATEGIC OIL RESERVES
(March to December 2020)
According to EIA data, coverage days are also well above historical records at 35.3 days as of December 18th, which corresponds to a 34% increase over the same date in 2019.
For Venezuela, this past year is the sixth of a terrible economic, political, and social crisis that shakes the country and to which the oil sector does not escape.
Venezuela’s economy’s deterioration marks a new historical record in the fall of the GDP, which means a setback of more than 70 years. Since the year 1950, with a population of 5,035,000 inhabitants, Venezuela’s GDP per capita amounted to 751.04 USD. This year, it barely reaches the figure of 600 USD. As of 2013, the accumulated loss of GDP reaches 74% with an economy entering its seventh consecutive year of contraction.
In the case of inflation, the estimates for the closing of the year 2020 are located at 6,500% according to the IMF, a hyperinflationary process that affects the day-to-day life of Venezuelans although the highest authorities of the government deny it. These indicators translate into a high cost of access to different items, such as food, public transportation, domestic gas, among others. By the end of the year, the dollar already exceeds 1,100,000 sovereign bolivars, making the monthly minimum wage of only 1 dollar the lowest in the hemisphere and probably in the world. This places more than 90% of the population below the poverty line according to UN indices.
In summary, 2020 was another year of economic and social regression for Venezuela, marked by uncertainty and political improvisation in the country’s recovery’s transcendental decisions.
The collapse of the Oil Industry
The Venezuelan oil industry’s downfall comes after six years of purges, persecutions, and militarization within the national oil company Petróleos de Venezuela. The above has led to the imprisonment of more than 100 managers, directors, and workers and has caused the departure of more than 30 thousand qualified workers and engineers from the company.
After six years of this persecution against ministers and directors who were at the head of the oil sector and the company during ten years of President Chávez’s government, the results of the violence and inadequate management of the industry are evident.
An unprecedented drop in oil and gas production in the world has brought the country’s oil production to only 407,000 barrels of oil per day, a decline of 2.6 million barrels of oil per day in just six years, equivalent to 86.5% of production from 2013 levels and a level of production similar to that of the country in 1930.
OIL PRODUCTION IN VENEZUELA
Venezuela is the country with the largest certified oil reserves globally with 316 billion barrels of oil, but its current oil output makes it an irrelevant producer. The country does not carry any weight in the world oil market, nor in OPEC’s heart, the organization of which it was a founder.
At present, the country has fallen from number 3 (which it occupied in 2013) in the ranking of OPEC producers to number 10, only above Congo, Gabon, and Equatorial Guinea.
OPEC COUNTRY RANKING
As for Latin America, the country has fallen from the first place it held in 2013 as the region’s oil producer to the current 6th place, just above Guyana.
RANKING OF OIL PRODUCERS IN LATIN AMERICA
As for the national refining system, the country, with an installed capacity of 1.3 million barrels per day, only operates at 10% of its capacity. As a result, Venezuela has been subject to a chronic shortage of fuels, gasoline, diesel, and LPG.
Refineries have suffered a process of disinvestment and mismanagement. Their technical staff has been irregularly accused of sabotage actions, causing their operational collapse. The government is importing gasoline from Iran (a country blocked and sanctioned by the US) and continuing using the argument of successive, supposed terrorist attacks that include «missile attacks» given its incapability to reactivate the sector.
EVOLUTION OF INTERNAL FUEL CONSUMPTION IN VENEZUELA
One after another, the government’s attempts to reactivate the refineries fail, producing explosions and spills that further affect the sector and surrounding communities.
It is important to highlight that the Venezuelan refining system, produced 1.15 million barrels of fuel in 2014. It disposed of 638 thousand barrels per day for the internal market and exported 404 MBD.
Today, refineries are either idle or operating at very low capacity. The same situation is experienced in the cryogenic and gas processing complexes. Venezuela is the 8th country with the largest gas reserves in the world. However, given PDVSA’s inability to operate, the population has had to cook using firewood.
The rescue of the Pilín León
Last December 26th was the 18th anniversary of the recovery of the oil tanker Pilín León70, which marked the defeat of the oil sabotage carried out by the oil management between 2002-2003 to overthrow the government of President Chávez.
The Pilín León tanker’s rescue marked the defeat of the blockade against our ships and the recovery of our national company, PDVSA. At that time, this insurrectionary political action sabotaged our entire national refining system by stopping and damaging its infrastructure and the automated and control systems. The oil and gas production had to be stopped when our storage capacities were full, and our ports were blocked. We had no vessels of our own.
As of January 2013, the country only produced 23 thousand barrels of oil per day. There was no gas or fuel to supply the internal market. The country was in chaos.
However, those of us who were at the forefront of the recovery of the Ministry of Oil, managers and workers, were able to re-establish the full operational capacity of PDVSA under the political leadership of President Chávez. In March, we reached the reestablishment of 3 million barrels of oil days. Exports were restarted, and our refineries and gas processing plants resumed operations.
With a revolutionary and responsible government and qualified technical teams, we could re-establish our oil operations and conquer our Full Oil Sovereignty. For the first time in our history, this allowed us to have oil at the service of all the people and sustain our national economy in continuous growth until the end of 2012.
The defeat of the oil sabotage was a lesson that, with a national and sovereign political orientation, our workers and national capacities of our oil industry could be managed and operated effectively and efficiently at the service of the people’s interests.
The problem with our oil industry is not technical, nor are the sanctions or blockades. And it is not the alleged terrorist attacks or conspiracies. It is an eminently political problem and one of the sector’s ability to put it back at the service of national development.
Ending of 2020
According to data reported by OPEC in the Monthly Oil Market Report for November, oil production in Venezuela is located at only 407 MBD, a reduction of 55.53%, concerning the production of January 2020 of 733 thousand barrels per day and a drop of 86.5% for the production of 2013 of 3,015 million barrels per day.
PRODUCTION OPP COUNTRIES
(2018- October 2020)
Although OPEC reflects an increase of 25 MBD over the previous month, this reflects the drainage of oil inventories in the country, which could be exported by private operators, who now control the company’s marketing activities who obtain massive discounts on the final price of oil.
COLLAPSE OF OIL PRODUCTION IN VENEZUELA
Since 2014, the Venezuelan oil industry suffered the collapse of its productive capacities, with a reduction of 86.5% of its capacity and with no hope of recovering the previous levels due to the militarization of the company, in addition to the persecution and detention of oil managers and workers who denounce the irregularities in the management and administration of PDVSA.
OIL PRODUCTION IN VENEZUELA
(2013- November 2020)
That is why, although Venezuela has been exempted from the production cuts, approved by OPEC+ last April, it has not been able to recover its oil production in the country.
Presidential Commission for the restructuring of PDVSA: another resounding failure:
In April of this year, Nicolás Maduro appointed Tareck El Aissami as Minister of Petroleum and Asdrúbal Chávez as President of PDVSA, simultaneously creating the Presidential Commission for another PDVSA restructuring commission, called «Alí Rodríguez Araque».
The result of this Presidential Commission is in sight: it is a resounding failure. The drop in oil production persists. There is no gasoline, despite the repeated announcements made by the minister to reactivate fuel production and reactivate its distribution in 1,568 service stations throughout the country.
The national refinery circuit is collapsed, and its capacity reduced to 20 MBD of gasoline. There is no domestic gas. The dismantling and cannibalization of drills, operational exploration equipment and facilities, the regularization of barter and exchange operations of oil for services received, the lack of qualified technical personnel, and the administrative and operational structure militarized and occupied by political militants adept at the government makeup today’s PDVSA are some of the problems the national oil industry is going through.
A company totally paralyzed and immersed in operational and political chaos is evidence of the mature Nicolas government’s thundering failure, focused on dismantling President Chavez’s Policy of Full Oil Sovereignty.
In the opinion of the specialists and oil workers and spokespersons and political leaders, the government does not have any plan for the recovery of the industry, so it is foreseeable that the country’s economic crisis will continue and deepen. Recovering Petróleos de Venezuela is strategic to raising the country’s economy. Evidence of this is that until the year 2013 PDVSA, contributed 96% of foreign currency income to the nation.
Historically, oil policies have been the support of the national economy; however, the perspective for the coming year of 2021 is of great uncertainty and will continue to fall due to the lack of management and direction on the part of the government to advance in a plan oriented towards its recovery.
The lack of legal security constitutes another negative element for attracting investments and the signing of contracts of any kind due to the lack of legitimacy of the government and its institutions and the absence of respect for the legal framework of the country’s hydrocarbons.
Through the National Constituent Assembly, the government’s strategy has been to promulgate the so-called Anti-Blockade Law. This unconstitutional instrument repeals the existing legal framework and constitutional reserves for hydrocarbon activity, the country’s most essential and strategic activity.
Worker arrests continue.
On November 18th, State security forces arrested the oil worker and FUTPV director, EudisGirot, on charges of terrorism and of revealing strategic information, for his denunciations of the outrage of which the PDVSA workers were victims, the elimination of their labor benefits and health insurance system called SICOPROSA, PDVSA’s debt to the PDVSA Workers and Retirees Fund, as well as the chaotic situation and operational collapse in the company.
The arrest of Eudis Girot, in addition to violating her trade union rights and the international agreements signed by the country within the framework of the ILO, constitutes a new outrage against workers, managers and directors of PDVSA, that are being persecuted and imprisoned within the framework of the government’s militarization and political persecution.
To date, there are more than 110 managers and workers of PDVSA in prison, kidnapped, without their right to defense or their presumption of innocence having been respected.
- Monthly Oil Market Report – February 2020, OPEP, febrero 2020.
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- El crudo vuelve al centro del conflicto en Libia, Atalayar, 22 enero 2020.
- Haftar anuncia que levantará el bloqueo a la industria petrolera en Libia, Atalayar, 18 septiembre 2020.
- Libia: La ONU aplaude el acuerdo de alto el fuego y llama a alcanzar una solución política para un futuro de paz y seguridad, Noticias ONU, 23 octubre 2020.
- The National Oil Corporation lifts force majeure on Al Feel (The Elephant) Field and pleased to inform the entire Libyan people of the comprehensive ending of the blockades in all Libyan fields and ports, Corporación Nacional de Petróleo y Gas de Libia NOC, 26 octubre 2020.
- Un ataque contra una explotación de petróleo causa 13 muertos en Libia, El País, 05 febrero 2015.
- Increasing Oil Production Rate … Reinstatement of Mabruk Oil Field … Introducing solar energy to the oil sector … the main topics discussed in the meeting between the National Oil Corporation and TOTAL, Corporación Nacional de Petróleo y Gas de Libia NOC, 26 octubre 2020.
- Weekly Supply Estimates, Administración de Información Energética de EE.UU, 23 diciembre 2020.
- Rig Count, Baker Houghes, 23 diciembre 2020.
- Bankruptcy-hit US operators set to lose a quarter of oil production in 2021, offsetting nationwide growth, Rystad Energy, 16 diciembre 2020.
- Coronavirus: la segunda ola ya causó más muertes que la primera en Europa, La Nación, 08 diciembre 2020.
- EE.UU. se enfrenta a «los tres meses más difíciles para la historia de su salud pública» con un récord diario de muertos y contagiados, BBC Mundo, 03 diciembre 2020.
- Federal Reserve announces extensive new measures to support the economy, Reserva Federal de EE.UU., 23 marzo 2020.
- El BCE destina 750.000 millones a compra de deuda pública y privada por el coronavirus, La Vanguardia, 19 marzo 2020.
- Congress Approves Spending Package to Avoid Shutdown, Clearing It for Trump, New York Times, 19 diciembre 2020.
- House passes bill for $2,000 stimulus checks – leaving it up to GOP-controlled Senate, CNBC, 28 diciembre 2020.
- El BCE estudia ampliar el programa de compra de bonos contra la pandemia hasta 2022, El Economista, 04 diciembre 2020.
- EU-UK Trade and Cooperation Agreement: protecting European interests, ensuring fair competition, and continued cooperation in areas of mutual interest, Unión Europea, 24 diciembre 2020.
- Brexit day: end of an era as United Kingdom leaves EU – as it happened, The Guardian, 31 enero 2020.
- WHO Coronavirus Disease (COVID-19) Dashboard, Organización Mundial de la Salud, 30 diciembre 2020.
- Alemania decreta un duro confinamiento hasta el 10 de enero, Radio Televisión Española RTVE, 13 diciembre 2020.
- Italia refuerza restricciones y cierra lugares de recreación, Deutshe Welle DW, 25 octubre 2020.
- El Gobierno decreta un estado de alarma para dar amparo constitucional pleno a las medidas contra la pandemia necesarias en las CC.AA., Presidencia del Gobierno de España, 25 octubre 2020.
- Cepa variante del SARS-CoV-2 – Reino Unido, Organización Mundial de la Salud OMS, 21 diciembre 2020.
- Fauci says herd immunity possible by fall, ‘normality’ by end of 2021, Harvard News, 10 diciembre 2020.
- Pfizer-BioNTech COVID-19 Vaccine, Administración de Alimentos y Medicamentos de EE.UU. FDA, 11 diciembre 2020.
- Moderna Announces FDA Authorization of Moderna COVID-19 Vaccine in U.S., Moderna, 18 diciembre 2020.
- Pfizer y BioNTech reciben la autorización de la UE para la vacuna contra la COVID-19, Pfizer, 21 diciembre 2020.
- Plan de recuperación para Europa, Unión Europea, 17 diciembre 2020.
- Xi: China reducirá emisiones de dióxido de carbono por unidad de PIB en más de 65 % frente a nivel de 2005 para 2030, Xihua Español, 13 diciembre 2020.
- El primer ministro de Japón hace hincapié en su compromiso con la reducción de emisiones de gases de efecto invernadero, NHK World Japan, 13 diciembre 2020.
- Biden to pick former Michigan governor Granholm to be energy secretary –sources, Reuters, 15 diciembre 2020.
- El plan Biden para una revolución de energía limpia y justicia ambiental, Joe Biden, 2020.
- Monthly Oil Market Report – December 2020, OPEP, 14 diciembre 2020.
- Más del 10% de la flota global de VLCC está reservada para ser utilizados como almacenamiento flotante, Wolrd Energy Trade, 03 mayo 2020.
- Short-Term Energy Outlook December 2020, Administración de Información Energética de EE.UU., 08 diciembre 2020.
- Solidaridad Internacional con el pueblo venezolano, Contacto con la Nueva PDVSA, diciembre 2006.