Energy Market Dynamics in the Era of the Russian-Ukraine War and its Implications for the U.S. Economy and Oil Markets
The group was trying to make a statement in the energy markets about their ability to defend their prices and their unity during the war in Ukraine, analysts say.
Last month, the group signaled concerns about the markets with a nominal cut of 100,000 barrels a day. When markets shrugged off that move and oil prices slipped below $80 a barrel for West Texas Intermediate, the American benchmark, the Saudis appear to have decided that a much bolder signal was required.
“We certainly see a significant chance that the producer group will opt for a substantial cut to try to signal that there is indeed an effective circuit breaker in the market,” Helima Croft, head of commodity strategy at RBC Capital Markets, an investment bank, said last week. Ms. Croft estimated that the group was considering announcing a cut of 500,000 to one million barrels a day, roughly 1 percent of the global supply.
Russia’s war in Ukraine also continues to hang over the energy market, as does President Vladimir Putin’s response to Europe’s oil embargo and the new price cap. If Russia slashes production, a move that could reduce supply by more than a million barrels per day, that could also lift prices.
The White House was upset. “The president is disappointed by the shortsighted decision by OPEC Plus to cut production quotas while the global economy is dealing with the continued negative impact of Putin’s invasion of Ukraine,” Brian Deese, the director of the National Economic Council, and Jake Sullivan, the national security adviser, said in a statement.
The Energy Department would be ordered by the president to release 10 million additional barrels of oil from the reserve in November. The administration said it had no plans to extend the effort, which was scheduled to end at the end of this month.
The European Union cap is intended to set the price of Russian oil lower than where it is today but still above the cost of producing it. The Kremlin could be deprived of tens of billions of dollars annually, according to the U.S. Treasury Department. Some analysts say the cap would make the oil trade more difficult and lead to higher prices. And it relies on the participation of non-E.U. nations that are still buying Russian oil.
A potential drop in global oil supply could be tricky to manage. The reopening of the Chinese economy in December has pushed up estimates for global oil demand.
As a result, it will be difficult for Europe to proceed with sanctions on Russian oil in December, as prices rise, according to S&P Global Commodity Insights.
Wednesday was the first time since March 2020 that a meeting was held in person at the headquarters of the Organization of the Petroleum Exporting Countries in Vienna. Alexander Novak, the deputy prime minister from Russia, has played a key role in fostering cooperation with other major oil- producing countries.
The presence of Mr. Novak could make officials in Europe cringe because of the increased cost of energy during the winter season.
Mr. Bronze said that some oil producers might see the price cap as an attempt to drive down prices more generally. Such worries could explain why OPEC Plus is willing to take such a big step and it will be unpopular in Washington.
The news conference was held to deny any collusion between Russia and the Kingdom of Saudi Arabia. He wondered where the act of belligerence was.
The group also agreed to extend for one year the agreement that created OPEC Plus, a combination of OPEC with Russia and its allies. The alliance, which started in 2016, had been scheduled to expire in December.
A Red Line in the Sand: Diplomacy, Strategy and the History of Wars that might still happen (by David A. Andelman)
A red line in the sand: diplomacy, strategy and the history of wars that might still happen is a book by David A. Andelman, who is a CNN contributor and winner of the Deadline Club Award. He was a reporter for The New York Times and CBS News. His views are not shared in this commentary. CNN has more opinion.
So much for cozying up to the Saudis – President Joe Biden’s much-hyped fist bump with Mohammed bin Salman during a trip to the Middle East back in July has turned into something of a slap across the face from the crown prince.
This week’s OPEC+ announcement that it would be slashing oil production by 2 million barrels per day – engineered, by most accounts, by Saudi Arabia and Russia – is already provoking a cascade of toxic geopolitical shifts.
There are a lot of issues in this epiphanal moment. The European Union has a price cap on Russian crude, and now it has to figure out how to implement it.
For now, the most immediate fallout will be on oil prices and revenues. The dramatic fall in oil prices, which peaked at over $130 a barrel in March, is causing an impact on pricing at the pump as well as inflation in the United States ahead of mid-term elections.
Simultaneously, the US has begun looking even more attentively to other sources of supply for crude to make up for the OPEC shortfall. The Wall Street Journal reported the Biden administration could be prepared to scale down sanctions on Venezuela and allow Chevron to begin exporting again from the country to the US, with some political conditions such as President Nicolás Maduro opening talks with opposition leaders.
This would have a small impact but could eventually be a sign of changing the world’s oil imports away from Russia. Indeed at its height in the 1970s, Venezuela was producing 3.8 million barrels per day, according to Forbes. In August this year, that figure was down to 723,000 barrels, according to the Warsaw Institute.
The United Kingdom, France and Germany are all considering restarting coal plants in order to solve their gas shortages. OPEC cutbacks and price increases could only accelerate this environmentally dangerous trend.
The Ups and Downs of the Middle East: Saudi Arabia’s Oil Crisis and the Phenomenology of the 2020 Oil and Gas Market
Furthermore, there is growing sentiment in Congress to reevaluate America’s wider relationship with Saudi Arabia and especially the vast arms sales to the kingdom.
Rep. Ro Khanna went further, telling CNN he wants the Biden administration to halt all sales of aviation parts – and to prevent Raytheon and Boeing from making Saudi sales. Both are large weapons suppliers to Saudi Arabia.
And Rep. Tom Malinowski told Politico Playbook this week that he will introduce legislation to “mandate the removal of US troops and missile defense systems” from Saudi Arabia and the United Arab Emirates. The GOP-sponsored bill from 2020 will make it hard for Republicans to vote no.
The agency said that higher oil prices will prove to be the tipping point for a global economy that is already on the verge of recession.
The IEA slashed its forecast for world oil demand growth next year by more than 20%, citing further downgrades to global growth expectations from major institutions. The International Monetary Fund said that for many people in the year of 2023 it will feel like a recession because it has cut its GDP growth forecast.
US President Joe Biden told CNN’s Jake Tapper this week that Washington must now “rethink” its relationship with Riyadh following the cut, which threatens to push up gasoline prices in America ahead of midterm elections.
Saudi Minister of State for Foreign Affairs Adel al-Jubeir said the cut was intended to stabilize markets. Al-Jubeir, one of the Saudi Arabia’s top diplomats, told CNN that they are trying to keep prices stable.
Typically, higher oil prices send non-OPEC producers into action, particularly US shale companies. They have suffered from supply chain disruptions as well as cost inflation and have yet to announce big investments into production.
Another factor playing into underinvestment: 2020’s oil bust. The early days of the epidemic drove the price ofBrent crude as low as $20 a barrel, which resulted in a string of bankruptcies in the oil and gas industry.
The U.S. oil and gas market is alive and well: Implications for gasoline, oil and oil prices from the end of the Ukraine war
Last month, the International Energy Agency said it expected global demand to surge by 1.9 million barrels per day to reach an all-time high of 101.7 million barrels per day, with China accounting for nearly half of the increase.
BRUSSELS — Eight months into the war in Ukraine, and eight rounds of frantic negotiations later, Europe’s sanctions against Russia run hundreds of pages long and have in many places cut to the bone.
Goods and sectors remain exempt even though they have been. The European Union has made compromises to maintain consensus, as well as intense back-room bargaining by some nations and private industry to protect sectors that they deem too valuable to give up.
The Belgians have shielded trade in Russian diamonds. The Greeks are free to ship Russian oil. France and several other nations still import Russian uranium for nuclear power generation.
US gasoline prices are now cheaper than they were one year ago, providing relief to Americans that have spent 2022 grappling with the worst inflation in decades.
“Gasoline deflation is alive and well,” Patrick De Haan, head of petroleum analysis at GasBuddy, tweeted on Wednesday, noting the quick comedown in gas prices in California, where prices have been particularly steep.
Falling energy prices may help ease inflation. The US consumer price index in October registered its lowest annual reading since January. Data for November arrives next week.
Both Brent crude futures, the global benchmark, and West Texas Intermediate futures, the go-to for US prices, have dropped almost 10% so far this week, hitting their lowest levels of the year.
China’s lifting of coronaviruses restrictions could cause demand from the country to rebound faster than anticipated. Oil prices have been falling in recent months due to concerns about the economic impact of those restrictions.
Ten Months of the War in Ukraine: Russian Public Repressions, Online Communication, Social Media, and News – The Case against the Military, the Internet, and the Media
Ten months have passed since Russian President Vladimir Putin announced his plan to send tens of thousands of Russian troops to demilitarize and defeat Ukrainian forces.
Putin insisted that his forces had begun a “special military operation” and would finish in a matter of weeks.
Millions of Ukrainians have been forced out of their homes and the Ukrainian economy has been decimated by the largest land war since World War II.
Yet the war has also fundamentally upended Russian life — rupturing a post-Soviet period in which the country pursued, if not always democratic reforms, then at least financial integration and dialogue with the West.
Legislation was passed in February that banned criticism of the military or leadership. A leading independent monitoring group says that more than 20,000 people have been put in jail for demonstrating against the war.
Lengthy prison sentences have been meted out to high profile opposition voices on charges of “discrediting” the Russian army by questioning its conduct or strategy.
The repressions extend elsewhere: organizations and individuals are added weekly to a growing list of “foreign agents” and “non-desirable” organizations intended to damage their reputation among the Russian public.
Even Russia’s most revered human rights group, 2022’s Nobel Prize co-recipient Memorial, was forced to stop its activities over alleged violations of the foreign agents law.
Russia’s anti-LGBT laws have also been greatly expanded by the state, as they argue that the war in Ukraine is an attack on traditional values.
For now, repressions remain targeted. Some of the new laws are still unenforced. Should the moment occur, the measures are intended to crush wider dissent.
Independent media outlets, as well as a few online investigative startups were forced to move abroad due to new laws thatcriminalized fake news.
Restrictions extend to internet users as well. American social media giants such as Twitter and Facebook were banned in March. Roskomnadzor, the Kremlin’s internet regulator, has blocked more than 100,000 websites since the start of the conflict.
Technical workarounds such as VPNs and Telegram still offer access to Russians seeking independent sources of information. Older Russians enjoy watching angry TV talk shows and state media propaganda.
The Russian Exodus After the USSR: What Have We Learned about Moscow? How Have We Solved Russia’s Problems?
Many perceived opposition to the government left during the war’s early days because of concerns of persecution.
Yet Putin’s order to mobilize 300,000 additional troops in September prompted the largest outflow: Hundreds of thousands of Russian men fled to border states including Kazakhstan, Mongolia and Georgia in an attempt to avoid the draft.
It was part of a self-cleaning of Russian society from traitors and spies, according to Putin. Russian officials have suggested stripping those who left the country of their passports. Russia has many of its best and brightest, but there is still a question about whether it can thrive.
Meanwhile, some countries that have absorbed the Russian exodus predict their economies will grow, even as the swelling presence of Russians remains a sensitive issue to former Soviet republics in particular.
Russia’s ruble currency cratered after the invasion and its banking and trading markets looked shaky. Hundreds of global corporate brands, such as McDonald’s and ExxonMobil, reduced, suspended or closed their Russian operations entirely.
The economic damage has already put an end to Putin’s two-decades strong reputation for providing “stability” — once a key basis for his support among Russians who remember the chaotic years that followed the collapse of the USSR.
When it comes to Russia’s military campaign, there’s no outward change in the government’s tone. Russia’s Defense Ministry provides daily summaries of their achievements on the ground. Putin insists that everything is going according to plan.
Yet the sheer length of the war — with no immediate Russian victory in sight — suggests Russia vastly underestimated Ukrainians’ willingness to resist.
Russian troops were not able to conquer the second city of Kharkiv. Kherson, the sole major city seized by Russia, was abandoned amid a Ukrainian counteroffensive in November. Russian forces have been shelling the city.
Russia’s illegal annexation of four territories of Ukraine following unrecognized referendums in September has only underscored Moscow’s problems: it hasn’t been able to establish full control over the lands it now claims as its own.
The true number of Russian losses – officially at just under 6,000 men – remains a highly taboo subject at home. Western estimates place those figures much higher.
Russia’s ability to defend its strategic infrastructure has been put into question by a series of blasts along a key bridge.
Russia’s invasion has backfired in its primary aims, as NATO looks set to expand to Russia’s borders with the addition of long-neutral states.
Longtime allies in Central Asia have criticized Russia’s actions out of concern for their own sovereignty, an affront that would have been unthinkable in Soviet times. India and China bought discounted Russian oil, but have stopped supporting the military campaign of Russia.
The Russian Central Bank Crisis: The status of the state of the nation and the future of the biggest press conferences in recent history, including the U.S.
The state of the nation address was supposed to take place in April, but was repeatedly delayed and will not happen until next year. Putin’s annual “direct line” — a media event in which Putin fields questions from ordinary Russians — was canceled outright.
An annual December “big press conference” – a semi-staged affair that allows the Russian leader to handle fawning questions from mostly pro-Kremlin media – was similarly tabled until 2023.
There was no reason given for the delays by the Kremlin. Many suspect it might be that, after 10 months of war and no sign of victory in sight, the Russian leader has finally run out of good news to share.
According to Reuters, Russia took the decision to reduce its output without consulting the OPEC+ group of producers, which includes Saudi Arabia. OPEC+ decided in October to cut output by 2 million barrels per day and has not adjusted that stance since.
Futures prices for Brent crude, the global benchmark, jumped 2.7% on the news Friday morning to $86 a barrel as traders anticipated a tightening in global supply.
In June last year, the European Union agreed to phase out all seaborne imports of Russian crude oil within the following six months as part of unprecedented Western sanctions aimed at reducing Moscow’s ability to fund its war in Ukraine.
Russian Urals crude traded at a discount to Brent crude of $28 a barrel Friday morning. Over the past few months, India and China have snapped up cheap oil from Moscow, just as the EU — once Russia’s biggest customer for crude — has ended all imports.
Western sanctions — added to the grinding cost of war — are weighing on Russia’s economy. The budget deficit more than doubled last year to $45 billion, or 2.5% of the GDP.