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By Viktor Katona of Oilprice.com

January 2021 is still far from over yet the pages of Oilprice already boast 6 articles about Guyana being the hottest drilling spot in the world. This is hardly surprising, considering the hot streak that ExxonMobil had over the past 5 years, with new companies coming in and stepping up the drilling game. The interest globally attributed to Guyana has aggravated Venezuela’s long-standing grievances over the disputed Essequibo province – before 2015 the Venezuela vs Guyana oil standoff was akin to a David vs Goliath story but now, with Guyana building up its oil reserves tally and continuing to attract new investors, the balance has become a lot more nuanced. Amidst all of this, Venezuelan President Nicolás Maduro has pledged to reconquer Essequibo.  At first glance, the proposition that Venezuela should go to war over a disputed territory, let alone with Guyana, seems rather dubious. Venezuela boasts the world’s largest proven oil reserves, totalling roughly 304 Bbbls (see Graph 1), i.e. more than all of North America combined, more than Iraq and Iran combined. Guyana’s reserves are a fraction of that, barely reaching 3% with its 9-10 Bbbls. However, behind the dry facade of data and statistics, there lies an entire universe of human emotions, oftentimes led astray due to their subjective nature and in this particular realm, Caracas is the one frustrated and concerned. Guyana is adding one major discovery after another (the recent failure of Hassa-1 notwithstanding), whilst the Venezuelan national oil company PDVSA keeps on struggling to make ends meet.

Graph 1. Venezuela’s Proven Oil Reserves 1980-2019 (billion barrels).

The dispute over Guayana Esequiba (alternatively dubbed the Essequibo Region) is one of the most complex remaining, mixing colonial legacies with modern-day grievances. It all began in 1840 when the British Empire demarcated the heretofore undisputed and unsettled frontier between British Guiana and Venezuela, by means the “Schomburgk Line”. To no one’s surprise Venezuela rejected the British claim, however, unwilling as they were to get mired in a protracted conflict, both sides agreed to disagree in 1850 and vowed not to colonize the then-largely uninhabited region. Despite arbitrations and negotiations, the question of who should control the Essequibo Region remained unsolved by the time of Guyana declaring itself independent in 1966. Caracas recognized the independent Guyana, however only its territories located to the east of the Essequibo River, maintaining its claim that all the territories to the west are part of Venezuela.

One of the most protracted territorial disputes globally, the discovery of oil offshore Guyana might have been the factor missing to propel the issue forward. ExxonMobil, the operator of Guyana’s Stabroek offshore block, was subject to maritime harassment by the Venezuelan Navy and had one of its surveying vessels detained in 2013. However, when Exxon discovered the Liza field in 2015, closer to the Guyanese-Surinamese frontier and hence were beyond the Venezuelan maritime claim, the stakes turned really high. Guyana had official proof that its offshore was not sub-commercial as was previously thought (initially companies appraised the shallow waters of Guyana and found no commercial deposits) and with the help of a US major could now count on high-level backing for its border case.

With every new discovery on the Stabroek block, Venezuela’s opposition to Guyana taking the left bank of the Essequibo River was becoming increasingly untenable. Concurrently, the good neighbor relations of the Chavez era when Guyana was member to the continent-wide Petrocaribe movement and even participated in barter deals to satisfy its crude needs, went downhill fairly quickly.
Yet there is another factor that most certainly contributed to Caracas now striking such a belligerent tone – US sanctions against Venezuela. Not only did the tightening of screws on President Maduro’s political allies and relatives blunt the political prospects of Juan Guaido, it also led to the entry of Venezuela’s military (that remained loyal to Maduro amidst the worst humanitarian suffering) into the Latin American country’s oil industry. 

Any future US administration will most probably seek to safeguard ExxonMobil’s assets in Guyana. A first sign of this – in the first days of 2021 the commander of the US Southern Command arrived in Guyana for a 3-day visit, to celebrate the launch of joint US-Guyanese coast exercises. According to top-ranking officials in the Guyanese army, Georgetown is intent on fortifying its military ties with the United States, including but not limited to arms purchases. Concurrently, Venezuela formed a new parliament which will no longer be controlled by the Guiado-style opposition – the pro-Maduro National Assembly will inevitably become more aggressive in its narrative and overall behavior. Part of the aggression might result from the UN Court of Justice’s ongoing review of the Essequibo case, the decision of which was already declined by Caracas before its actual deliverance. 

So, will there be a war between Venezuela and Guyana? Such a scenario seems unlikely now.

First, Maduro might wait to see what the new Biden Administration has to offer, how will it tackle the Venezuelan conundrum.

Second, there is very little reason to heat up tensions now, when no final decision had been taken, the peak of confrontation should be around 2023/2024 when the ICJ is assumed to deliver its opinion on the legal status of the Essequibo Region.

Third, even if the ICJ rules in favor of Guyana which seems quite likely, Venezuela remains unlikely to trigger a military response, for fear of actual US retaliation. It is one thing to foil an amateurish coup attempt by a private military company (Operation Gideon in May 2020), an altogether different one to deal directly with the US military. 

Summary:

• California Gov is lifting stay at home orders
• Dr. Fauci criticizes US COVID approach, worries vaccines wont’ stop mutations
• US cases, deaths, hospitalizations decline
• Biden signs COVID travel bans
• BoJo approves border crackdown
• South Africa approves AZ vaccine for vaccinations
• Macron expected to announce 3rd French lockdown
• Oxford plans first trial of new COVID drug

* * *

It’s already mid-morning on Monday and it’s already turning out to be an interesting week for COVID-19 news. Following a WEF panel earlier this morning where Dr. Fauci heaped blame for any failures in fighting COVID on President Trump, California Gov Gavin Newsom on Monday said he plans to lift some regional stay at home orders.

Newsom is expected on Monday to lift regional coronavirus stay-at-home orders across California, a change that could allow restaurants and gyms in many counties to reopen outdoor dining and any other services.

All counties would return to the colored tier system that assigns local risk levels based on case numbers and rates of positive COVID cases. Most counties will go into the “widespread” risk tier, which permits hair salons to offer limited services indoors but restricts many other nonessential businesses . The change is expected to take effect immediately after Newsom’s announcement.

It’s not yet clear whether the decision will lead to easing of stay-at-home rules in Los Angeles County, which has become a national hotbed of the coronavirus, with hospitals overwhelmed by patients. In less than one month, more than 5K people have died of COVID-19 in the county alone.

In the US, cases, hospitalizations and new deaths have been falling across the board.

Last week, Dr. Fauci led the US delegation back to the WHO like a conquering hero, announcing that under the Biden Administration, the US would cooperate with the organization’s plan to distribute vaccine doses globally, while halting President Trump’s attempt to leave the UN-funded NGO.

Well, on Monday, Dr. Fauci joined a panel led by Bloomberg News CEO John Micklethwaite and a handful of other experts at the (virtual) WEF to discuss the global response to the COVID pandemic one year after the virus came bursting out of Wuhan, infecting the rest of the world.

Oddly, the WEF decided to name its panel “the Great Reset”, as if the same people weren’t still running the global response to the COVID-19 pandemic. But the subtext was clear: With President Trump gone, the world can get back to the fundamentals of battling COVID-19.

really can’t make this up pic.twitter.com/3sUCb10Qgx

— zerohedge (@zerohedge) January 25, 2021

In the latest attempt to slander President Trump, the good doctor said during Monday’s forum that the US’s response to COVID-19 didn’t have a “science” focus, which “cost it dearly”, Dr. Fauci said, in the latest attempt to insinuate that President Trump – and Trump alone – is responsible for the 400K+ confirmed COVID deaths.

Fauci complained that the Trump administration had “a considerable amount of mixed messaging on what needed to be done from top down.” Like when Dr. Fauci first told people not to wear masks, before changing his mind? Or when he opposed travel bans, before changing his mind on that also?

Or, how about more recently, when he flip-flopped for banning travelers from South Africa?

When it comes to the South African strain, Dr. Fauci warned that the decline in vaccine efficacy could pose serious problems in the future.

He then blamed the fact that these public health issues had become “politically charged”. When public health issues become politically charged, like wearing a mask or not becomes a political statement, “you can’t imagine how destructive it is to any unified health message,” Dr. Fauci said.

The Pandemic “shed a very bright light” on America’s weaknesses, he added, without going into too much details.

Moving on, Dr. Fauci said he was worried about what might happen if people start to delay the second dose of their COVID vaccines, with Dr. Fauci insisting that the vaccines won’t achieve full efficacy without both doses.

Readers can watch the entire panel below:

Looking ahead, Dr. Fauci said the big question looking forward is figuring out whether the vaccines that have been developed in the West will be effective in stopping mutated versions of the vaccine. But the most important thing is that patients receive both doses of the vaccine, since full efficacy won’t kick in until the booster dose has been delivered.

Here’s some more COVID news for overnight and Monday morning:

US President Biden will sign an order on Monday to ban entry to most non-US citizens who have travelled to UK, Ireland, Brazil and South Africa. It was also reported that the CDC will sign an order requiring mask use on all flights, trains and ride-sharing vehicles, while it will not grant waivers for airlines seeking exemptions from COVID-19 testing requirements for all international flights. (Newswires)

Pfizer (PFE) will ship fewer COVID-19 vaccine vials to account for ‘extra’ doses in each vial and will account a 6th dose in each vial towards its prior commitment of supplying 200mln doses by end-July after it received FDA approval to change the vaccine’s formal authorization language to acknowledge an additional dose for a total 6 doses per vial. (New York Times)

UK PM Johnson is to approve a new border crackdown on Tuesday which could ban entry into the UK for nationals of COVID-19 hotpots, while there are also proposals for those arriving from hotspots including British citizens to be escorted to isolation hotels upon arrival where they will need to quarantine at their own expense.

Oxford University researchers are planning the first, large high-quality trial of ivermectin which is a low-cost drug that claimed to reduce deaths by 80% among patients in hospitals, although other scientists were sceptical of the data which was from a combination of 11 prior trials and said that more results would be required before it could be considered as a treatment. (The Times)

French President Macron may announce a 3rd national lockdown on Wednesday night which could take effect from the end of the week and last at least 3 weeks, amid concerns of a new wave of COVID-19 infections driven by the UK variant. (Journal du Dimanche)

* * *
In other news, while the world frets about the South African COVID variat, the country’s health regulators have just approved AstraZeneca’s vaccine for use in the country, marking the first vaccine approved in South Africa.

Whether it is due to the absolute insanity taking place among the most shorted names, or the broader market suddenly tumbling (perhaps as the PPT forgot to keep an eye on the S&P transfixed by the action in GME), Downdetector and Bloomberg report that a slew of trading platforms are reporting problems on Monday, and while some have been resolved while others are ongoing.

• Robinhood is experiencing issues with crypto trading
• Vanguard tweeted it understands some clients are experiencing issues accessing their accounts
• TD Ameritrade says it is aware of an issue impacting a small number of clients on the thinkorswim platform, a company spokesperson said
• Charles Schwab announced it worked to resolve an issue
• There was a slowdown in Merrill logins earlier Monday, but the situation has been resolved, according to a Bank of America spokesperson
• E*Trade users reported problems Monday, according to Downdetector

Meanwhile, aside from the ridiculous action in penny stocks and supershorts, the broader market has just tumbled.

The US Supreme Court on Monday ordered the dismissal of a pair of lawsuits accusing former President Trump of illegally profiting from his presidency, after several foreign and state government officials patronized his properties – including the Trump International Hotel in Washington, located a few blocks from the White House.

The plaintiffs included hotels, restaurants and the attorneys general of Maryland and the District of Columbia, and accused Trump of violating the Constitution’s two emoluments clauses, according to Bloomberg Law, which notes that “One clause bars a president from accepting benefits from foreign governments without congressional consent, while the other bars receipt of any benefit other than a salary from the U.S. government or a state.”

The cases were dismissed after both sides agreed that the disputes had become legally moot after Trump’s term in office ended on January 20th.

One of the key questions in the cases was who, if anyone, had standing to sue to enforce the emoluments clauses. According to the report, lower courts in both cases said the plaintiffs had legal standing, while the Supreme Court set aside those rulings as part of its Monday order – a step urged by the Trump DOJ.

The cases are Trump v. Citizens for Responsibility and Ethics in Washington, 20-330, and Trump v. District of Columbia, 20-331 (via Bloomberg)

Meanwhile, Trump’s post-presidency legal woes appear to be ramping up, as Manhattan District Attorney, Cyrus Vance, expanded his office’s criminal investigation into the Trump organization’s finances last week.

According to the Daily Mail, prosecutors have begun looking into a 212-acre property north of New York City called Seven Springs, which NY Attorney General Letitia James is looking at as part of a probe over whether Eric Trump and various corporate entities artificially inflated property values.  A 2012 document values the property at $291 million, while local realtors say it’s worth more like $50 million or less. The Trump organization bought it in 1995 for $7.75 million.

The organization then put part of the property into a land trust via conservation easement, which would leave that portion – 158 acres – untouched and undeveloped, ostensibly resulting in a tax break based on the value of the property. The higher the valuation, the larger the tax deduction.

It [the 158 acres] was appraised at $21.1 million, according to the filings but now investigators are looking to see whether the value was artificially inflated. 

‘Valuations of Seven Springs were used to claim an apparent $21.1 million tax deduction for donating a conservation easement on the property in tax year 2015, and in submissions to financial institutions as a component of Mr. Trump’s net worth,’ according to court filings in the New York attorney general’s investigation. –Daily Mail

The probe into Trump’s finance originated after Vane opened an investigation into hush-money payments made to two women prior to the 2016 election, who claimed they had sexual relations with Trump.

Vance notably came under fire in 2018 over a 2015 decision not to pursue charges against Harvey Weinstein – after an attorney for the movie mogul gave Vance $24,000, while another attorney sent $10,000 following the decision.

By Eric Peters, CIO of One River Asset Management

“The big boys are no longer bullish,” bellowed Biggie Too in baritone. “The big boys are now bubble bullish,” continued the chief investment strategist for one of Wall Street’s Too-Big-To-Fail affairs. “They ask Biggie, why can’t the S&P trade 5,500?” said Too, easing into third person. “And Biggie asks ’em back: We got 6% GDP and 1% rates, who’s gonna short this?” he said. “You do the math, you gonna tell Biggie to short this thang?” asked Too. And I shrugged, having long since learned to recognize when Biggie’s question is the answer.

“No one’s gonna short the S&P unless 6% GDP falls to 4%, or 1% rates jump to 2%,” barked Biggie. “Ain’t happening in Jan,” whispered Too. “Too much Covid, too little vaccine, too much money, too few places to put it,” he said, riffing. “You think Powell’s gonna do a 2013 taper tantrum right now?” laughed Biggie. “No chance, everyone knows it. And that’s the only thang that scares Biggie,” said Too, smiling, breaking into a slow groove. “So tell me why ain’t this thing already up 10%? Why’s LQD soft? EMFX too?” winked Biggie.

“You know we gonna get a 15-20% budget deficit in 2021 right?” asked Biggie, not waiting for an answer. “And you know we gonna have a Fed balance sheet that’s 40% of GDP?” asked Too, on a roll. “And they just wrote $600 checks and now they’re gonna write $1,400 checks right?” he asked. I nodded. “You know that when these kinds of numbers keep rising they get real hard to roll back, right?” asked Biggie. “You know this is the kind of thing that sparks the Mamma of all Bubbles?” he asked. “And you know inflation will mark its end?”

Gatsby: “The 1920s followed the pandemic,” explained the CIO. “People don’t tend to draw that connection, but the reality is that throughout history, such catastrophes lead to periods where people lose their minds,” he said. “This time around, the government is providing the bridge, funding the collapse in demand. Who knows for how long? It could be 3yrs in total.” Here we are, approaching another March with lockdowns looming. “You see signs of political insanity, all sorts of speculation too, Robinhood. And today, everything happens faster, time compresses.”

Treadmills:

“Anyone being intellectually honest about Covid should admit the stimulus will be with us for a long time,” explained the CIO. “Mass vaccinations will take longer than anyone thinks – it’ll take until late summer or early autumn to bring Covid’s prevalence down,” he said. “Then come the mutations.” Which make it appear likely we’ll need to tweak the vaccines. “So we may enter a cycle where it takes nearly a year to vaccinate the population and each year we need new vaccines, which means this will restrain the economy for a couple more years.”
 
Caligula:

“It’s an orgy,” said the CIO. “A money illusion, sucking everyone in,” he continued, acknowledging that a fiat system is itself a monetary mirage. “In a market like this, you use your marked-to-market profits to double down, then to double down again,” he explained, all SPAC’d up with nowhere to go. “And it feels like we’re entering the illusory-illusion phase, where prices keep running ahead of the money supply expansion – where things keep going up as long as the Ponzi unit of account continues expanding,” he said. “It only ends when liquidity tightens.”

“This is the hyper-aggressive stage of the market cycle where the smartest value guys start warning,” continued the same CIO. “Klarman, Marks, Grantham.” They remind us that asset prices must ultimately be anchored to fundamentals. “They’re not wrong of course, but they’re usually early, and the foundation for this speculative boom remains intact,” he said. “They argue valuations are extreme, and they’re right. But they can always get more extreme, and what you learn from past cycles is that valuations and fundamentals can diverge for ages.”