Russia hits Ukrainian grain storage for 4th day

According to Reuters, Russia pounded Ukrainian food export facilities for the fourth day in a row on Friday and practiced seizing ships in the Black Sea in an escalation of what Western leaders say is an attempt to wriggle out of sanctions by threatening a global food crisis.

The direct attacks on Ukraine's grain, a key part of the global food chain, followed a vow by Kyiv to defy Russia's naval blockade on its grain export ports following Moscow's withdrawal this week from an UN-brokered safe sea corridor agreement.

"Unfortunately, the grain terminals of an agricultural enterprise in Odesa region were hit. The enemy destroyed 100 tons of peas and 20 tons of barley," regional governor Oleh Kiper said on the Telegram messaging app.

Photographs released by the emergencies ministry showed a fire burning among crumpled metal buildings that appeared to be storehouses, and a badly damaged fire-fighting vehicle. Two people were injured, he said, while officials reported seven people killed in Russian air strikes elsewhere in Ukraine.

Moscow has described the attacks as revenge for a Ukrainian strike on a Russian-built bridge to Crimea - the Ukrainian Black Sea peninsula seized by Moscow in 2014.

Russia has said it would deem all ships heading for Ukrainian waters to be potentially carrying weapons, in what Washington called a signal it might attack civilian shipping. Kyiv responded by issuing a similar warning about ships headed to Russia.

The attacks on grain export infrastructure and perceived threat to shipping drove up prices of benchmark Chicago wheat futures on Friday towards their biggest weekly gain since the February 2022 invasion, as traders worried about supply.

The UN Security Council was due to meet later over the "humanitarian consequences" of Russia's withdrawal from the safe corridor deal, which aid groups say is vital to fend off hunger in poor countries.

Turkish President Tayyip Erdogan, the deal's sponsor alongside the UN, said he hoped planned talks with Russian President Vladimir Putin could lead to the restoration of the initiative.

The end of the deal could lead to rising global food prices, scarcity in some regions and potentially new waves of migration, Erdogan told reporters on a flight back from a trip to Gulf countries and northern Cyprus.

The West should listen to some of Russia's demands, he said. "We are aware that President Putin also has certain expectations from Western countries, and it is crucial for these countries to take action in this regard."

Moscow says it will not participate in the year-old grain deal without better terms for its own food and fertilizer sales.

Western leaders have accused Russia of seeking to loosen sanctions imposed over its invasion of Ukraine, which already exempt exports of Russian food. Russian grain has moved freely through the Black Sea to market throughout the conflict and traders say Russia is pouring wheat onto the market.

Russia and Iran conspiring to weaken US dollar, alleges Israel

Russian Presidential Aide Igor Levitin, who is currently on a two-day trip in Tehran, met with the Secretary of Iran's Supreme National Council Ali Shamkani, and the two discussed ways to thwart Western sanctions.

During the meeting, Shamkhani expressed his satisfaction with the volume of economic cooperation between Russia and Iran, praising the path that started to reduce the influence of the dollar in regional and international economic exchanges.

These plans, he said, "will limit the dominance of the West over the world economy to the minimum."

The representatives also discussed the ongoing joint project, the North-South Transport Corridor (NSTC), which Shamkhani described as having a decisive role in changing the geometry of goods transit in the region.

The NSTC is a transport network for moving freights between Iran, Russia, Azerbaijan and other countries in Asia and Europe.

The transport corridor aims at creating new networks to avoid the US and the West as sanctions grow on Iran.

Levitin, for his part, expressed Moscow's readiness to invest in Iran's steel, oil and petrochemical industries.

Despite Russian efforts to weaken the US dollar, the currency has continued to gain this week, while the Russian rouble is having the worst week of the year so far.

The Russian rouble suffered its worst week against the dollar this year, tumbling on a lack of foreign currency in Moscow and on the sale of Western businesses in Russia, despite gaining slightly on Friday afternoon as traders locked in profits.

The rouble RUBUTSTN=MCX skidded more than 2% against the US dollar on Friday to an intraday low of 83.50, its weakest since April last year, and fell more than 2% against the euro to an intraday low of 91.32 against EURRUBTN=MCX.

The rouble had nosedived to 113 per US dollar after President Vladimir Putin ordered the invasion of Ukraine in February 2022, but the central bank and finance ministry helped stabilize the currency, and it strengthened to 50 per dollar in July 2022.

The West then imposed a price cap on Russian oil - the lifeblood of the Russian economy - late last year, since which the rouble has weakened from about 60 per US dollar to more than 80 US dollar this week.

Traders said the Russian currency has come under pressure recently from a cocktail of problems including the sale of Western assets to domestic investors, which stoked demand for dollars, while lower oil prices in March cut the country's export revenue.

The rouble is the third-worst performer among global currencies so far this year, behind only the Egyptian pound and the Argentine peso, Reuters calculations show.

"The Russian currency remains in fundamentally weak conditions," said Vladimir Evstifeev, head of analysis at Bank Zenik. He said exporters were reluctant to swap their export revenues for roubles in the expectation that the dollar would strengthen while importers were buying foreign currency in the expectation of a bounce back in consumer confidence.

"The rate of weakening of the Russian currency is increasing, so it is likely that the authorities will get involved in the situation on the foreign exchange market and conduct a series of verbal interventions in support of the rouble."

United States the biggest beneficiary of Russia-Ukraine war

The Ukraine war has entered its second year and the past 12 months have shown there are a variety of aspects of this conflict. In this write up an effort has been done find the movers-shakers and losers-benefiters. My conclusion - Ukrainians the biggest losers.   

In 2014, following the revolution in Ukraine, armed clashes broke out between ethnic Russians (opposed to the new government in Kyiv) and the Ukrainian military in the country’s eastern Donetsk and Luhansk regions which make up the Donbas.

Despite European attempts to ease the fighting, including the Minsk agreements which granted self-government to the Donbas, the fighting continued, leaving around 15,000 people dead. Officials in Donetsk and Luhansk claim that Kyiv aimed to wipe them out. This caused deep concern in Russia.

Meanwhile over the past decade, despite repeated warnings by Moscow, NATO has been expanding eastwards towards the Russian border.  

The US-led military alliance triggered alarm in Moscow which warned NATO to avoid dangerous steps that pose a threat to Russia’s territorial integrity and sovereignty.

Amid the massive NATO buildup of forces coupled with advanced and sophisticated weapons that can strike the heart of Russia, the Kremlin sought security guarantees from the US and NATO. These were effectively ignored by both the US and NATO.

On February 24, 2022, Russia launched attack on Ukraine, calling it a “special military operation”.  It cited several reasons for the attack, including the stance of the government in Kyiv, attacks on ethnic Russians in the Donbas region, and NATO expansion to the borders of Ukraine.

Ukraine and its Western backers argue that the conflict waged by Russia was unprovoked.

Current state of affairs

As things stand, the fighting in flashpoint regions of eastern and southern Ukraine shows no signs of ending.

Moscow has annexed four regions in Ukraine where mostly ethnic Russians reside, following a referendum by the people in Luhansk, Donetsk, Zaporizhia and Kherson.
Ukraine and its Western backers have dismissed the votes as a sham.

The war has seen suffering on both sides, but mostly in Ukraine which has witnessed a high death toll and millions displaced, although a significant proportion of those have returned home.

Sanctions

The US and its Western allies have imposed unprecedented sanctions on Russia. From the freezing of US$330 billion of Russian assets to the silencing of all Russian media outlets, the Western sanctions regime continues to this day and has targeted almost all sectors of Russian society, even to the extent of banning Russian athletes from international sports tournaments. The sanctions have failed to end the war.

On the other hand, they have backfired mostly on the people of Europe. According to IMF forecasts in 2023, the UK economy will be worse off than sanction-hit Russia.  

Inflation

If anything, Western sanctions on Russian energy and wheat have backfired on Europe and beyond.

Europe has faced an energy crisis this winter. It was dependent on cheap Russian gas for 40% of the continent’s consumption.

Europe is now filling the gap by purchasing US liquefied natural gas (LNG) at astronomical prices.

This has spearheaded record inflation levels in European households, which has in turn seen waves of protests and strikes in many European countries paralyzing the public sectors. But it’s a major income boost for US energy firms.

United States Role

1. The United States is widely believed to have instigated the war in its efforts to contain Russia.

2. Washington has by far been the largest supplier of weapons to Ukraine.

3. The Pentagon has been shipping weapons to the tune of tens of billions of dollars. The White House has repeatedly announced fresh military packages for Kyiv.

4. Yet that doesn’t mean NATO members have not chipped in.

The US and other Western arms manufacturers have made very lucrative profits from the war that is the reason many experts argue, allies want the conflict to continue as long as possible.

By the same token, Russia and other countries say pouring weapons into the warzone has not and will not end the conflict. Moscow says the arms deliveries will only increase the suffering of Ukrainians and prolong the war.

Kyiv argues it needs more advanced weapons, such as battle tanks, to repel Russian forces in the country’s east. There are major question marks as to whether these weapons will change anything on the battlefield.

Some European Parliament lawmakers have said the war serves the interests of the US and not the interests of Europeans.

Europe fails in ending violence

After the fall of Afghanistan to the Taliban in August 2021 and the embarrassing scenes of US-led forces fleeing the country, repetitious statements were made by the European Union about the need to distance itself from the military affairs of the US in different parts of the world.

EU foreign policy chief Josep Borrell said Europe needs to develop its own military capacity independent of the United States.

The 27-member bloc revived debates about Europe developing the means to act independently from the US

The EU reiterated it needed to develop diplomatic and military muscle and what France's President Emmanuel Macron termed as strategic autonomy.

Some countries are going to have to ask themselves questions about an American ally which, as Joe Biden said, doesn't want to fight other people's wars for them.

"The Europeans don't have a choice. We must organize ourselves to deal with the world as it is and not the world that we dream of," Borrel said.

"We have to analyze how the EU can further deploy capabilities and positively influence international relations to defend its interests. Our EU strategic autonomy remains at the top of our agenda."

As Europe tried to be sovereign instead of taking directions from Washington, it failed to do so, as witnessed five months later with the eruption of war in Ukraine.

The Europeans understood perfectly that they are still defenseless, both militarily and diplomatically.

They don’t have the means to significantly contribute in ending a conflict on their doorsteps.  

All the European ducks have lined up and have taken their marching orders from Washington again, with a very few exceptions.

The Europeans are unable to take themselves out of this fatal subservience to the Americans.

Accusations against Iran and China

The US and NATO have accused Tehran and Beijing of providing arms to Russia to use in the Ukraine war. Both countries have dismissed the allegations as ludicrous, saying they have been working with both parties to find a political solution to the conflict.

Russia has also rejected reports that it has received weapons from any third party.

International community

While the West claims the international community stands in solidarity against Russia, the facts on the ground suggest otherwise.

However, a considerable number of countries have taken a neutral stance toward the war.

NATO does not represent the international community, despite statements by its Secretary-General, Jens Stoltenberg. 

The international community is calling for a peaceful resolution, something the US has stood firmly against.

Countries benefiting from war

The biggest beneficiary of this war has been the United States.

It has been successful in triggering a conflict in Europe to try and contain Russia’s growing power.

It has disrupted gas supply to the continent by sabotaging Nord Stream pipelines delivering Russia’s cheap gas to European consumers.

Many experts also say the US has pitted and provoked Russia and Ukraine against each other, in a similar fashion to other conflicts instigated by the Pentagon. 

 

Russia: Outlook painted by IMF looks too rosy

The International Monetary Fund delivered some uplifting economic news to Vladimir Putin. The Russian president should now make the case to his own government, which doesn’t share the IMF’s optimism.

The international body recently estimated that Russia will avoid a recession in 2023 and expand at 0.3% after shrinking by 2.2% in 2022 that amounts to a quasi-stagnation, but still looks too positive.

At first glance, the Fund’s latest forecast is a reason for hope for an economy battered by the cost of its invasion of Ukraine and associated sanctions. Even though the global economic prospects do not look as dire as they did a few months ago, the Russian revision is significant. In October 2022, the IMF was seeing the country’s GDP contracting by 2.3% in 2023.

The IMF hasn’t detailed the assumptions underpinning its upbeat Russian outlook. Russian economists, polled this month by the country’s central bank, are still expecting GDP to fall by 1.5% this year.

The economy ministry still predicts that output will contract by 0.8%, according to Russian independent publication The Bell.

The key to the IMF’s optimism may be its assumptions about oil prices and the effect of the recent bans and price caps by the European Union and the G7 group of industrialized countries. The measures will not significantly affect Russia’s oil exports, the Fund says.

That is a matter of intense debate among economists since oil prices remain below the cap set by the G7.

Much will depend on the evolution of oil prices this year. Oil and gas exports amounted to about 15% of Russia’s GDP in 2021, and related taxes finance more than 40% of the government’s budget.

Urals , the Russian crude, trades at around $56 a barrel. The discount to benchmark Brent is now at 33%, against 7% before the war. That is a sign that sanctions have had some impact. It also throws further doubt on the IMF’s optimism.

In October 022, Russian central bank predicted that the domestic economy would contract by between 1.5% and 4% this year. That assumed a US$70 a barrel price for Urals – the same number the government used for its budgetary planning.

Four months later, the world economy has brighter prospects and Russia may be more resilient than expected. But only a serious oil price rally, improbable in the context of the global economy’s subpar growth - to quote the IMF - could justify looking at Russia through rosy glasses.

 

United States: Gas prices plunge to the lowest levels in 30 years

Gas prices in the United States plunged to the lowest levels in 30 years signaling to dial back new well drilling and maximize combustion by power producers.

Front-month futures closed at US$2.45 per million British thermal units on February 09, 2023 in only the second percentile for all months since 1990, after allowing for the increase in core consumer prices.

Working inventories in underground storage were 17 billion cubic feet, above the prior ten-year average on February 03.

But that was a massive turnaround from a deficit of 427 billion cubic feet recorded as recently as September 09, 2022.

Mild weather has played a relatively small role in erasing the earlier deficit and transforming it into a large incipient surplus.

The number of heating degree days across the Lower 48 states so far this winter has been only 5% below the long-term average.

More important has been loss of exports following the explosion at Freeport LNG’s terminal and reduced consumption stemming from high prices through much of 2022.

Freeport’s eventual reopening should provide an outlet for some excess inventory, but with stocks in Europe also very full, exporters will have to compete for price-sensitive customers in Asia.

Slumping futures prices will discourage drilling and incentivize electricity generators to run their gas-fired units for more hours at the expense of coal.

The number of rigs drilling for gas has been essentially unchanged since the start of September - after increasing by more than 50% in the first eight months of 2022.

Discounted futures prices will also boost combustion from the power sector, helping limit the accumulation of inventories this summer.

The summer-winter calendar spread between July 2023 and January 2024 has slumped into a contango of more than US$1.10 per million British thermal units from a backwardation of more than 50 cents in August 2022.

Gas prices are now trading below the cost of coal, once the superior efficiency of gas-fired units is taken into account, which will encourage maximum gas burn this summer.

 

India: Refiners pay traders in dirhams for Russian oil

Indian refiners have begun paying for most of their Russian oil purchased via Dubai-based traders in United Arab Emirates dirhams instead of US. Dollars, reports Reuters.

While Western sanctions against Moscow are not recognized by India, and purchases of Russian oil may in any case not violate them, banks and financial institutions are cautious about clearing payments so as not to unwittingly fall foul of the many measures imposed against Russia following its invasion of Ukraine.

Indian refiners and traders are concerned they may not be able to continue to settle trades in dollars, especially if the price of Russian crude rises above a cap imposed by the Group of Seven nations and Australia in December.

That has led traders to seek alternative methods of payment, which could also aid Russia's efforts to de-dollarize its economy in response to the Western sanctions.

Previous attempts by Indian refiners to pay traders for Russian crude in dirhams through Dubai banks failed, forcing them to switch back to the US currency.

But India's top bank, the State Bank of India (SBI), is now clearing these dirham payments, the sources told Reuters, providing details of transactions that have not previously been reported.

The G7 price cap prohibits any Western company, such as the insurance and shipping service providers that underpin much of global trade, from involvement in trading Russian crude if the purchase price is above $60 a barrel at the loading point in Russia. That remains the case even if the oil is bound for countries such as China and India which do not recognize the cap.

The shift to dirham payments was also triggered by the SBI asking refiners looking to make dollar payments for Russian crude to provide a breakdown of the costs of the oil, freight and insurance, allowing it to vet trade and avoid violating the cap.

"The SBI is very conservative in its approach," one of the sources said, even though India does not follow the price cap mechanism and Western insurance and shipping are not used for delivery.

Indian refiners typically buy Russian crude from traders at a price that includes delivery to India.

An invoice for such a deal seen by Reuters showed traders asking for an average crude price including freight for Urals crude. The document calculated the price of the cargo in dollars and dirhams.

The four sources said Indian refiners are buying Russian oil on a delivered basis to mitigate any risks arising during shipping, and so far the calculated cost at the point of loading has been below the price cap.

Indian refiners mostly buy Russian crude from Dubai-based traders including Everest Energy and Litasco, a unit of Russian oil major Lukoil.

India's oil secretary Pankaj Jain last month said Indian companies were not facing any problems in paying for Russian oil as the latest actions by the West do not impact the trade settlement mechanism.

 

US to become net exporter of crude oil in 2023

The United States has become a global crude oil exporting power over the last few years, but exports have not exceeded its imports since World War II. That could change next year.

Sales of US crude to other nations are now a record 3.4 million barrels per day (bpd), with exports of about 3 million bpd of refined products like gasoline and diesel fuel. The United States is also the leading liquefied natural gas (LNG) exporter, where growth is expected to soar in coming years.

The United States consumes 20 million barrels of crude a day, the most in the world, and its output has never exceeded 13 million bpd. Until recently, the idea that it would be anything but a big crude importer was folly.

Last month, the US government data showed net US crude oil imports fell to 1.1 million barrels per day (bpd), the lowest since record keeping began in 2001. That is down sharply from five years ago, when the United States imported more than 7 million bpd.

Factors changing that equation this year include sanctions hurting Russia's exports of oil and natural gas following its invasion of Ukraine, and Washington's massive release of oil from emergency reserves to combat spiking gasoline prices.

"Russia's invasion of Ukraine has spurred new demand for US energy and should push oil exports above imports late next year assuming shale output accelerates," said Rohit Rathod, market analyst at energy researcher Vortexa.

To become a net exporter of crude, the United States needs either to boost production or curtail consumption. US petroleum demand is expected to rise 0.7% to 20.51 million bpd next year, meaning production has to be rise.

The United States already produces more oil than any other country in the world including Saudi Arabia and Russia. US shale fields are aging and production growth this year has been sluggish. Overall output should reach a record 12.34 million bpd next year - but only if prices are lucrative enough to encourage oil drillers to pump more.

European refiners have snapped up US grades to offset the loss of Russian oil, and with U.S. crude's deeper discounts to global benchmarks, Asian refiners have stepped up purchases to 1.75 million barrels per day, data analytics firm Kpler said.

Export terminal operators are rushing to boost their capacity to better service the giant tankers that can carry more than 2 million barrels of oil.

"Russia has proven to be an unreliable supplier," said Sean Strawbridge, Chief Executive of the largest US oil export facility, Port of Corpus Christi. "That really creates a wonderful opportunity for American producers and American energy."

Corpus Christi could see a 100,000 bpd increase in exports next year, Strawbridge said, on top of the record shipments of 2.2 million bpd in October.

Analysts said net exports could taper off if numerous countries worldwide fall into a recession, hampering demand, and if further relaxation of sanctions on Venezuelan crude oil boosts that country's shipments.

 

US shale oil output to grow at snail's pace

Oil output from the Permian shale basin in January is set to touch a record 5.6 million barrels per day (bpd), said US forecast on Monday, but the increase is a third of September's pace.

Output in the biggest US shale oil basin is set to rise by about 37,000 bpd, the smallest gain in seven months, based on projections from the US Energy Information Administration (EIA) in its monthly drilling productivity report.

Gains slowed as some of the largest firms are warning of overworked oilfields and less productive new wells.

Overall US output is forecast to reach a record 9.32 million bpd in January, according to the EIA, up only 94,500 bpd over the prior month. In August, the month-over-month increase was 207,500 bpd.

Legacy oil production change, which excludes output from new wells, will show steeper declines in all major shale producing regions in January. Production from new wells, defined as one that began producing for the first time in the previous month, also is expected to fall.

In the Bakken region of North Dakota and Montana, the EIA forecast oil output next month will rise 21,000 bpd to 1.22 million bpd, the largest total since November 2020.

In the Eagle Ford shale in South Texas, output will rise 10,000 bpd to 1.24 million bpd in January, its highest total volume since April 2020.

Natural gas production also is expected to grow by 535 million cubic feet per day to a record 96.28 billion cubic feet of gas per day. US gas production is rising sharply amid growing global need for the fuel.

In the biggest shale gas basin, Appalachia in Pennsylvania, Ohio and West Virginia, January output will rise to 35.53 bcfd, the highest since hitting a record 36 bcfd in December 2021.

Gas output in the Permian and the Haynesville field in Texas, Louisiana and Arkansas will rise to record highs of 21.39 bcfd and 16.41 bcfd in January, respectively.

EIA said producers drilled 1,005 wells in November, the most since March 2020. Total drilled-but-uncompleted (DUC) wells rose by 22 to 4,443 in November, the first monthly increase since June 2020

 

United States Joins hands with Britain to control energy trade

The United States and Britain announced on Wednesday an energy partnership aimed at sustaining a higher level of liquefied natural gas (LNG) exports to Britain and collaborating on ways to increase energy efficiency.

Britain and other European countries have turned to the United States as they try to reduce their reliance on Russian energy supplies following Moscow's invasion of Ukraine begun in February.

This partnership will bring down prices for British consumers and help end Europe's dependence on Russian energy," British Prime Minister Rishi Sunak said in a statement.

The "UK-US Energy Security and Affordability Partnership" will also aim to drive investment in clean energy and exchange ideas on energy efficiency and reducing demand for gas.

Household energy bills have hit record highs this year following Russia’s invasion of Ukraine forcing the UK government to cap costs and subsidize the difference a measure analysts forecast could cost up to 42 billion pounds or US$51 billion over the 18 months the cap is in place.

Western countries are also attempting to cap how much Russia can profit from the rise in energy costs that has followed its invasion of Ukraine.

The G7 - which includes Britain and the United States - has agreed a $60 per barrel price cap on Russian seaborne crude oil.

The United States became the world's largest LNG exporter in the first half of 2022, US Energy Information Administration data showed as the country rapidly increased its export capacity and high prices, particularly in Europe led to higher exports.

Britain said the United States would aim to export 9-10 billion cubic metres of LNG over the next year under the agreement, maintaining the increase in exports seen this year.

Refinitiv Eikon data showed Britain has imported around 11 billion cubic metres (bcm) of gas from the United States so far in the first 11 months of 2022, up from 4 bcm in 2021.

Sunak met US President Joe Biden at the G20 in Indonesia last month, where Sunak highlighted the importance of the United States as an economic partner even without a free trade deal. Talks on a free trade agreement are suspended.

On Wednesday, Junior Trade Minister Greg Hands will begin a visit to the United States, where he is announcing a memorandum of understanding on trade with South Carolina, the third such agreement with a US state aimed at boosting trade missions and sharing expertise.

 

 

 

 

 

 

 

 

 

More Europeans will perish from energy crisis than Ukraine war

The most vulnerable people in Europe, the elderly and those living alone or on low pay to medium paychecks will pay the highest price: Death.

More people will perish in Europe this winter because of unaffordable household energy costs than those who have died on the battlefield in the Ukraine war, according to research by the British weekly newspaper The Economist.

Last week, the United Nations said the official civilian death toll from the Ukraine war has risen to nearly 6,900, with civilian injuries topping 10,000. Whilst the death of military forces in Ukraine has been difficult to verify, the number of soldiers thought to have died in Ukraine is estimated at 25,000-30,000 for each side.

The Economist modeled the effect of the unprecedented hike in gas and electricity bills this winter and concluded that the current cost of energy will likely lead to an extra 147,000 deaths if it is a typical winter.

Should Europe experience a particularly harsh winter, which is something likely when considering the growing effects of climate change, that number could rise to 185,000. That is a rise of 6.0%. It also reports that a harsh winter could cost a total of 335,000 extra lives.

Even in the rare case of a mild winter, that figure would still be high with tens of thousands of extra deaths than in previous years. If it is a mild winter, research by The Economic indicates the death toll would be 79,000.

The Economist's statistical model included all 27 European Union member countries along with the United Kingdom, Switzerland, and Norway.

It is anticipated that Governments across Western Europe would be alarmed and concerned by these shocking figures published by the study.

But it remains to be seen what measures these governments will take to prevent so many extra fatalities in their own countries because of the energy shortage.

The energy crisis itself began when Europe, which was heavily reliant on Russian gas, imposed heavy sanctions on Russian energy exports following Moscow’s war in Ukraine. Before the war, Russia supplied 40-50% of the EU’s natural-gas imports. One of Europe’s strongest economies, Germany for example, had become dependent on Moscow’s gas flows and had no Plan B.

The move clearly backfired on Western economies, with inflation reaching record levels not seen in decades, mainly as a result of the soaring energy prices. That has left pensioners and other poorer as well as middle-class income households facing a choice of putting food on the table this winter or heating their homes.

The study by The Economist says that despite European attempts to stockpile as much gas as possible to fill their storage facilities, many consumers are still being hurt by the rise in wholesale energy costs.

Even as market prices for fuel have slightly declined from their peaks, the real average residential European gas and electricity costs are 144% and 78% above the figures for 2000-19.

As it is being hurt the most, Europe could take serious and concrete efforts to push both Kyiv and Moscow to the negotiating table and hold peace talks that would bring an end to the war.

That would ease a lot of problems facing the continent – and the world – from energy shortages to the global food supply chain disrupted by the war. However, critics argue, this would backfire on many Western arms manufacturers who are making lucrative profits from their weapons shipments to the warzone.

There are many officials and other influential figures in the West, especially the U.S. congress (despite America not being included in a study by The Economist), who have links to arms manufacturers; which makes the possibility of peace somewhat unlikely.

While the United States has sent weapons to the tune of US$40 billion dollars, European countries show no sign of opting for peace with the new British Prime Minister Rishi Sunak, the latest to announce plans of maintaining or increasing military aid to Ukraine next year

The other course of action is for Western governments to ease the cost-of-living crisis by spending more on social welfare and hiking the tax rates for the rich.

This would save lives by allowing families to heat their homes but many Western governments are taking the opposite route, by claiming they need to cut spending in order to strengthen economic growth in the long run. 

As things stand, the new research by the Economist will add to the fears already facing families in Europe ahead of the winter season. The lower the temperatures will be in Western Europe, the more likely it will be that higher-than-usual death tolls are going to hit the continent. 

As The Economist notes, although heatwaves get more press coverage, cold temperatures are usually deadlier than hot ones. Between December and February, 21% more Europeans die per week than from June to August.

The report says that in the past, changes in energy prices had a minor effect on mortality rates in Europe. But this year’s hikes to household bills are remarkably large.

The Ukraine conflict has exposed other massive costs that have accompanied the violence. The Organization for Economic Co-operation and Development estimates that the world economy in 2023 will be US$2.8 trillion smaller than was estimated in December 2021, before the fighting erupted in February.

The British weekly newspaper, which built a statistical model to assess the effects of the sharp rise in energy prices, forecasts deaths based on weather, demography, influenza, energy efficiency, incomes, government spending, and electricity costs, which are closely correlated to prices for a wide variety of heating fuels.

It used data from 2000-19, (excluding 2020 and 2021 because of covid-19) and says the model was highly accurate, accounting for 90% of the variation in death rates.

High fuel prices can exacerbate the effect of low temperatures on deaths, by deterring people from using heat and raising their exposure to cold.

It says that with average weather, the study found a 10% rise in electricity prices is associated with a 0.6% increase in deaths, though this number is greater in cold weeks and smaller in mild ones.

In recent decades’ consumer energy prices have had only a modest impact on winter mortality, because energy prices have moved or swung back and forth in a regular rhythm.

In a typical European country, increasing fuel prices from their lowest level in 2000-19 reduce the temperature from the highest level in that period to the lowest which means colder weather increases the death rate by 12%.

The study cites the case of Italy, where electricity bills have surged to nearly 200% since 2020, extending the situation, which it said was a linear relationship that yields extremely high death estimates. It has been reported that the country will suffer the most extra deaths. The results show that Italy, which has an older population along with soaring higher electricity prices makes it the most vulnerable. 

Other countries such as Estonia and Finland are also expected to suffer from higher fatalities on a per-person basis. People in Britain and France will also be affected. The model for the effects of fatalities from high energy costs did not include Ukraine.

However, damage to the energy infrastructure in Ukraine as a result of the war, will also certainly have a dire humanitarian effect on Ukrainians as well.

Over the past weeks, many reports have emerged citing Europeans as saying they will be forced to switch the heating off because of the high fuel prices, essentially exacerbating the effect of cold temperatures on deaths by raising people’s exposure to low temperatures.

The most vulnerable people in Europe, the elderly and those living alone or on low pay to medium paychecks will pay the highest price: Death.

 

US shale producers just can’t beat OPEC Plus

Shale oil drillers turned from scrappy wildcatters into multi-millionaires over the past two decades, propelling the United States to become the world's largest producer, but now they are running out of runway. Oil output gains are slowing and executives from some of the largest firms are warning of future declines from overworked oilfields and less productive wells.

On Sunday, the Organization of the Petroleum Exporting Countries (OPEC) meets to decide whether to hold the line or cut its output, no longer afraid that their policy decisions might provoke a surge in shale production in the way they did in the years before the pandemic.

The sidelining of US shale means consumers around the world may face a winter of higher fuel prices. Russia has threatened to block oil sales to countries supporting a European Union price cap, and the United States is winding down releases from emergency oil stockpiles that helped cool energy inflation.

US shale production costs are soaring and there is no sign that tight-fisted investors will change their demands for returns rather than investment in expanding drilling.

During a decade of stunning growth, shale consistently defied production forecasts, and opposition from environmentalists, as technology broke open more and more shale plays and revolutionized the global energy industry.

But there appears to be no new industry-transforming technologies in the works or cost-savings that could change the picture this time around. Inflation has pushed up costs by up to 20%, and less productive wells are crimping the industry's ability to produce more.

Industry spending on new oil projects, said analysts last week at Morgan Stanley is modest at best and the absolute level of investment is still historically low.

Shale has proven naysayers wrong in the past. After the 2014-2016 OPEC price war put hundreds of oil companies into bankruptcy, shale innovated with less expensive ways of operating. Their subsequent gains gave the United States by 2018 the title of world's largest crude producer, a distinction it still holds.

Shale can't come back to become a swing producer, because of the investors' unwillingness to finance growth. The demand for payouts and repeated price busts has forced oil producers and service companies to cut back on science projects that fed past production breakthroughs.

The industry also has less time to regain its former leadership, said Hess Corp CEO John Hess. He estimates rivals have about a decade of running room before they fizzle out. Shale is no longer in the driver's seat with OPEC regaining control over the market, said Hess.

Shale's waning influence is clear in North Dakota. Once the vanguard of the US shale oil industry, poor well productivity in the state's Bakken region and labor shortages have left it far from its boom days.

As the number of prime drilling locations decline across all shale fields, the outlook is grim. Shale production declines rapidly after peaking compared to conventional oil wells, falling about 50% after the first year.

The Permian Basin of west Texas and New Mexico, the largest and most important US oilfield, is the only US shale region to exceed its pre-COVID-19 pandemic oil production levels, according to US Energy Information Administration data. Even that field is showing signs of stress.

Volatility of oil prices will be name of the game in December 2022

The month of December has started and it can be rightly termed the most crucial for the energy market as several events and factors would determine the trend in prices by the end of year 2022 and beyond.

While the Chinese zero-Covid policy and protests against that policy weigh negatively on market sentiment, the OPEC plus meeting on December 04 and the beginning of the European Union embargo on Russian seaborne crude oil imports on the next day are likely to shape the course of the prices. Uncertainty is high, which would stoke further volatility in prices. 

Oil slumped early on Monday to the lowest level in nearly a year – since December 2021, weighed down by risk aversion in commodity markets amid protests in China over the authorities’ strict Covid curbs policy. 

The recent price rout, with Brent plunging by 10% in one week, intensified speculation that OPEC Plus members could consider another production cut when they meet on Sunday, December 4. On the following day, December 5, the EU ban on imports of Russian crude oil and the associated G7-EU price cap begins, with the exact price of the cap yet to be agreed on and announced. 

With so many uncertainties, oil prices are seesawing on every rumor or report. This week and the ones after that will likely see more of the same and prices could swing either way depending on the OPEC Plus meeting, the EU ban and price cap on Russian oil and Russia’s reaction to it, and the developments in China, which, so far, is singlehandedly dragging down oil prices due to fears of weak demand in the world’s top crude oil importer at least in the short term. 

A violent move down in prices began on November 21 after The Wall Street Journal citing OPEC delegates that the members of the group had informally discussed whether there would be a need for more oil on the market in view of the EU embargo on Russian crude oil imports. The report was immediately denied by OPEC’s top producer Saudi Arabia and another influential member of the cartel, the United Arab Emirates (UAE). 

“United Arab Emirates denied that it is engaging in any discussion with other OPEC+ members to change the last agreement, which is valid until the end of 2023,” its Energy Minister Suhail al-Mazrouei said on November 21.

“We remain committed to OPEC Plus aim to balance the oil market and will support any decision to achieve that goal,” the minister added. 

As of November 29, speculation is mounting that OPEC Plus could consider a cut at its December 4 meeting due to gloomier-than-expected oil demand outlook amid Chinese Covid curbs and protests and slowing economies elsewhere. 

Considering that oil prices slumped to the lowest level since December 2021, OPEC Plus could indeed decide to defend an US$80 floor under prices, but it will have a difficult task in predicting how the embargo on Russian crude will impact trade flows and prices. 

The structure of the oil futures market is showing sign of sluggish global oil demand and sufficient supply just ahead of the embargo on Russian oil. Weakening physical demand and plunging spot premiums for Middle Eastern crude could prompt OPEC Plus to announce a fresh cut on Sunday. 

The alliance of OPEC and non-OPEC producers led by Russia regularly denies it’s defending a certain oil price, but it always says that it looks at the market fundamentals.

These days, the physical market is showing signs of weakness and even an oversupply in the short term, considering the contango in both WTI and Brent front-month to second-month futures. 

Iraq, OPEC’s second-largest producer, signaled this weekend that the OPEC+ meeting would focus on the current market conditions and balances.  

Several hours after the OPEC+ meeting, the EU embargo and the price cap on Russian oil enter into force. There are so many uncertainties surrounding the measures that analysts cannot predict anything but further volatility in oil prices. The uncertainties range from the exact price of the cap – with the EU still at odds over this five days before the embargo kicks in – to how many vessels Russia would need to place its oil to willing buyers, where ship-to-ship transfers can occur for Baltic exports bound for Asia, how big the ‘dark fleet’ under the radar could be, and last but not least, whether Putin will go through with his promise to stop supplying oil to anyone joining the price cap. 

“All of these things are so significant to the oil markets that they could whip prices from one direction to the other very significantly,” Michael Haigh, Global Head of Commodities Research & Strategy Societe Generale, told The Wall Street Journal.   

Poland seeking German support to sanction Russian Druzhba oil pipeline

According to a Reuters Report, Poland is seeking German support to slap EU sanctions on the Polish-German section of the Druzhba crude pipeline so Warsaw can abandon a deal to buy Russian oil next year without paying penalties.

The sources also said the pair was nearing an agreement for Poland to coordinate seaborne oil supplies to Germany via Gdansk and part of Druzhba to facilitate Poland's purchase of the Russian-owned Schwedt refinery in Germany.

The EU has pledged to stop buying Russian oil via maritime routes from December 05, 2022, but Druzhba is currently exempt from sanctions. That presents a problem for Polish refiner PKN Orlen, which has a long-term deal to purchase Russian oil via the pipeline and would need to pay penalties to break the contract.

If the EU were to impose sanctions on Druzhba - or at least its northern section supplying Poland and Germany - both countries would be able to get out of their Russian oil importing commitments penalty-free.

The southern section of the pipeline supplies Hungary, Slovakia and the Czech Republic which, unlike Poland and Germany, would struggle to diversify their oil imports.

According to the sources, the Polish climate ministry and German economy ministry are in the final stage of talks on a memorandum of understanding on oil logistics, which could unlock non-Russian flows and help Poland's top refiner pursue its interest in Schwedt.

Germany remains committed to not using Russian oil from 2023 and is working on a solution with Poland to secure the supply of Schwedt, a spokeswoman for the economy ministry in Berlin said on Friday.

Meeting pledges by Poland and Germany to stop buying Russian oil requires regulation at the EU level and both countries are cooperating to achieve this, the Polish climate ministry said on Friday.

Germany has put Schwedt under a six month trusteeship, stopping short of nationalising the refinery, and is seeking ways to supply it with oil.

Poland and Germany promised in spring to try to end Russian oil imports via Druzhba's northern leg by the end of year but Orlen remains tied to its contract with Russian oil and gas company Tatneft.

The Polish refiner has nominated supplies for Druzhba for 2023 as stipulated by the contract but these would stop if the pipeline was hit by sanctions, one of the sources said.

Orlen declined to comment on Friday.

The company has already cut its reliance on Russian oil to 30% of its requirement, replacing it with deliveries from Saudi Arabia and Norway among others.

Kommersant newspaper reported earlier this month that Orlen had submitted an application to the Russian oil pipeline operator Transneft for the supply of 3 million tonnes of oil to Poland through Druzhba in 2023.

Control over Schwedt, which also supplies western Poland, would boost Orlen's refining capacity and control over the flows of oil and its products in the region with assets in Poland, Czech Republic, Lithuania and Germany.

 

 

 

LNG trade faces unprecedented times

According to Seatrade Maritime News, LNG shipping is seeing exceptional strength, already fueled by geopolitical vagaries, and with the impact of winter weather patterns yet to be determined.

The sector received considerable emphasis at Marine Money’s mid-November Ship Finance Forum, held in midtown New York.

Mike Tusiani, Poten & Partner’s Chairman Emeritus, in introducing the day’s kick-off panel, described the present situation as an unprecedented time in the LNG trades.

His colleague at Poten, Jefferson Clarke, talked about “ton time” having supplanted ton miles as the operative metric in explaining LNG shipping’s rise.

He said that commodity prices are driving the flows of LNG; in short, it gives the incentive for charterers to hold on to tonnage…and not get access to tonnage.

He explained that vessel charterers have been moving vigorously into the term market, and explicitly linked high LNG prices with demand for term charters.

Though media headlines within the mainstream and trade press have pointed to charter hires for high end LNG carriers at US$400,000 per day or more, spot fixtures are actually few and far between.

Oystein Kalleklev, CEO of Flex LNG said, after reviewing fixture lists, that he could only find two spot fixtures done in November.

On a shipowner panel later in the day, Kalleklev opined that LNG shipping is like a liner trade in contrast to more spot-oriented commodity sectors, including VLGC/ LPG transporter Avance Gas, where he is Executive Chairman.

On that same panel, he described the FLNG strategy, if he were taking delivery of a hypothetical new vessel, as “fix it out, finance it, and pay a hell of a lot of dividends.”

He described one year time charters as being in the US$200,000 per day range with three-year deals drawing around US$170,000 per day but added that there will be volatility.

In the earlier panel, he indicated a preference for a strategy of fixing FLNG’s vessels on term business when they come off existing charters, rather than expanding the fleet with expensive newbuilds.

Kalleklev attributed strength in the markets to waiting and delays, which effectively reduce available supply, in explaining the market’s dynamics. In LNG trades, he explained that “ton time has mitigated the downturn in ton miles.

People are waiting more, people are deploying floating storage. One component of the potential volatility awaiting market participants this time around might be unwinding of such storage if the present contango structure LNG pricing was to flatten out.

He noted that a precipitous market fall in late 2018 had been brought about by a previous instance of floating storage being unwound.

 

 

 

Russia-China trade on the rise

Days before Putin ordered his troops into Ukraine, President Joe Biden and US allies warned that an invasion would result in devastating sanctions and crippling costs. By summer end, some 30 countries had imposed various forms of sanctions on Russia’s energy and financial sectors, as well as on Russia’s ability to import semiconductors and key technology components.

Despite Putin’s claims that Western economic restrictions and penalties have had little impact, evidence suggests otherwise. Making transactions has become more difficult, supplies of important goods have been much more limited, and the ability for many Russian businesses and businesspeople to move through overseas commercial centers, has become harder. Some 1,200 foreign companies have either sharply reduced operations in Russia or left there altogether.

But many other countries have chosen not to join the sanctions effort, and some seem to view the invasion—complete with atrocities and veiled threats of strategic nuclear weapons—as a business opportunity.

According to Chinese customs data, its bilateral trade with Moscow grew 31% in the first eight months of 2022. In July, China imported US$10 billion worth of goods from Russia, an increase of 49.3% from July 2021. China relies heavily on Russia for oil imports, with crude petroleum making up about 48.3% of total Russian imports to the country. Meanwhile, Russia primarily leans on China for electronics such as broadcasting equipment and computers, which make up about 14% of Chinese imports to Russia.

To be clear, close economic ties between Russia and China aren’t anything new. Since 2014, China (coincidentally, the year Russia illegally invaded and began occupying Crimea) China has remained Russia’s largest trading partner, while Russia is China’s fourteenth largest trading partner. China’s determination not to join in sanctions has amplified Russia’s dependence on what China’s markets and financial systems offer. 

When Xi and Putin met to discuss China-Russia relations on September 15, 2022 during the summit of the Shanghai Cooperation Organization, it was the first time the leaders met since they established a “no limits” relationship shortly before Putin’s invasion.

While China watchers noted Putin’s admission that China had questions about the war in Ukraine, he still exuded confidence in China-Russia relations as a strategic, comprehensive partnership with expectations for the alliance to deepen bilaterally and internationally.

With news of battlefield setbacks reaching domestic audiences in Russia, President Putin will likely be more sensitive than ever about any complaints by Russian citizens about food shortages or daily economic hardships.

If more countries were to join the US and its allies in imposing sanctions, one wonders how long Putin could maintain his current special military operation. Given Russia’s increased reliance on Chinese trade, what would happen if China were one of those countries?

 

Energy crisis in Europe, only because of following the United States blindly

As the weather gets colder in Europe, the efforts for curbing gas and electricity consumption are reaching their limits as the short-lived relief the European Union was celebrating over the past few months is starting to fade.

Before the United States commenced proxy war in Ukraine, Russia contributed to the lion’s share of European energy imports. With the conflict, now in its ninth month, disrupted that partnership, and no more gas is flowing through Nord Stream 1.

The energy crisis in Europe can be considered from two major aspects: 1) the short-term effects and challenges, and 2) the long-term impacts and solutions.

Considering the condition of the Union’s storage facilities, which according to the International Energy Agency (IEA) are currently 95% full, Europe might be able to pass through this year’s winter but there is a heavy price that it must pay in doing so.

Businesses across Europe are not just curbing their energy use, but continuing on a business as usual basis. They are shutting down factories, downsizing, or relocating. Europe may well be on the way to deindustrialization. The Eurozone manufacturing activity has fallen to the lowest since May 2020.

In its latest analysis of the European energy crisis published on November 03, the IEA said that the union could face a shortage of as much as 30 billion cubic meters (bcm) of natural gas during the next year’s pick summer period for refilling its gas storage sites.

In the report dubbed “Never too early to prepare for next winter: Europe’s gas balance for 2023-2024” IEA cautions that the cushion provided by current storage levels, as well as recent lower gas prices and unusually mild temperatures, should not lead to overly optimistic conclusions about the future.

“With the recent mild weather and lower gas prices, there is a danger of complacency creeping into the conversation around Europe’s gas supplies, but we are by no means out of the woods yet,” said IEA Executive Director Fatih Birol.

A look at the IEA report shows that the European Union is going to face a great challenge in meeting its energy needs in the coming years and considering the heavy costs of shipping gas from long distances, Iran could have been a significant contributor to the resolution of this issue.

Having the world’s biggest gas resources, Iran could provide Europe with the energy it desperately needs if the infrastructure for a pipeline were there or if the constant sanctions have not had prevented Iran from accessing the technology required for liquefying natural gas on large scales.

Unlike oil, natural gas is hard to be shipped on large scales in the form of gas, and therefore it is exported either through pipelines or by turning it into Liquefied Natural Gas (LNG), but that is an expensive and high-investment proposition. Iran currently does not have the infrastructure to export large amounts of gas to Europe.

Despite all these limitations, Iran has constantly voiced its readiness to help Europe ease at least part of its energy demand.

In early October, Iran's Deputy Foreign Minister Ali Baqeri Kani highlighted the impact of sanctions on energy security in Europe amid the Russia-Ukraine war and voiced Tehran’s preparedness to help restore energy security to the continent.

"It was thought for many years that countries like Iran should pay the cost of being sanctioned, but now the Europeans have realized that imposing sanctions has also a price," Baqeri Kani said.

Considering the current experiences and looking into the future, European governments should see clearly the negative impacts that the sanctions have had and are going to have on global energy security and therefore more efforts should be made to help the nuclear talks reach the “ending” that would be a “win-win” scenario for both sides.

 

Saudi Arabia and China to work together to maintain oil market stability

Saudi and Chinese officials confirmed their willingness to work together to support stability in the international oil market. Prince Abdulaziz Bin Salman, Saudi Arabia’s Minister of Energy, held an online meeting with Zhang Jianhua, National Energy Administrator of the People's Republic of China.

During the video call, both sides confirmed that they would strengthen bilateral relations between the two countries in the field of energy.

They highlighted the significance of China and Saudi Arabia, as important global energy producers and consumers, regularly exchanging views.

The two sides confirmed their willingness to work together to support the stability of the international oil market, continue close communication, and strengthen cooperation to address emerging risks and challenges.

They also highlighted the importance of long-term and reliable oil supply to stabilize the global market that endures various uncertainties due to complex and changeable international situations, noting that the Kingdom continues to be China's most reliable partner and supplier of oil.

Discussions between the two sides covered cooperation and joint investments along the Belt and Road countries, as well as investments in integrated refining and petrochemical complexes in both countries and strengthening cooperation in the energy sector supply chain through establishing a regional hub for Chinese manufacturers to utilize the Kingdom's strategic location linking three continents.

The two sides agreed to cooperate within the framework of the Bilateral Cooperation Agreement in Peaceful Uses of Nuclear Energy between the Chinese and Saudi governments.

In addition, both ministers stressed the importance of cooperation in the field of electricity and renewables, and to collaborate in the field of clean hydrogen through research and development.

Nord Stream investigation finds evidence of detonations

A crime scene investigation of the Nord Stream 1 and 2 gas pipelines from Russia to Europe has strengthened suspicions of gross sabotage involving detonations, Sweden's Security Service said on Thursday.

Swedish and Danish authorities have been investigating four leaks from the pipelines in Swedish and Danish exclusive economic zones in the Baltic Sea since they were first spotted at the beginning of last week.

Europe, which is a facing an energy crisis is investigating what caused the damage as Moscow seeks to pin the blame on the West, suggesting the United States stood to gain.

Washington denies any involvement as a stand-off between Russia and European countries continues over supplies of gas that have stopped flowing or been put on hold as a result of the conflict in Ukraine.

The Nord Stream operators said this week they were unable to inspect the damaged sections because of restrictions imposed by Danish and Swedish authorities who had cordoned off the area.

"After completing the crime scene investigation, the Swedish Security Service can conclude that there have been detonations at Nord Stream 1 and 2 in the Swedish economic zone," the Swedish Security Service said in a statement.

The security service said there was extensive damage to the gas pipelines and they had retrieved some material from the site that would now be analyzed. The evidence has strengthened the suspicions of gross sabotage, they said.

Sweden's Prosecution Authority said in a separate statement that the area, where gas spewed into the sea for almost a week, was no longer cordoned off.

Russia said on Thursday it had been informed via diplomatic channels that it was not able to join the investigation.

"As of now, there are no plans to ask the Russian side to join investigations," Kremlin spokesman Dmitry Peskov told reporters, adding that Moscow replied it was not possible to conduct an objective investigation without its participation.

Swedish prosecutors had on Monday cordoned off the area of the leaks for a crime scene investigation conducted by the Swedish Coast Guard and Navy.

On Wednesday, Sweden's Justice Minister said in response to the Kremlin that it was not possible to let others take part in a Swedish criminal investigation.

Denmark's Foreign Minister Jeppe Kofod told Reuters on Thursday that his Ministry had not told Russia to stay out of the investigation, but that a police-led taskforce between Denmark, Sweden and Germany was in charge of the investigation.

Maria Zakharova, spokeswoman for the Russian Foreign Ministry, said separately on Thursday that Moscow would insist on a comprehensive and open investigation that includes Russian officials and Gazprom.

"Not to allow the owner (of the pipelines) to witness the investigation means there is something to hide," Zakharova said.

 

 

OPEC Plus agrees deep oil production cuts

OPEC Plus agreed steep oil production cuts on Wednesday, curbing supply in an already tight market, causing one of its biggest clashes with the West as the US administration called the surprise decision shortsighted.

The de-facto leader of the cartel, Saudi Arabia said the cut of 2 million barrels per day (bpd) of output - equal to 2% of global supply - was necessary to respond to rising interest rates in the West and a weaker global economy.

The kingdom rebuffed criticism it was colluding with Russia, which is included in the OPEC+ group, to drive prices higher and said the West was often driven by "wealth arrogance" when criticizing the group.

The White House said President Joe Biden would continue to assess whether to release further strategic oil stocks to lower prices.

"The President is disappointed by the shortsighted decision by OPEC+ to cut production quotas while the global economy is dealing with the continued negative impact of (Russian President Vladimir) Putin’s invasion of Ukraine," the White House said.

Biden faces low approval ratings ahead of mid-term elections due to soaring inflation and has called on Saudi Arabia, a long-term US ally, to help lower prices.

US officials have said part of the reason Washington wants a lower oil price is to deprive Moscow of oil revenue. Biden travelled to Riyadh this year but failed to secure any firm cooperation commitments on energy. Relations have been further strained as Saudi Arabia has not condemned Moscow's actions in Ukraine.

Saudi Energy Minister Abdulaziz bin Salman said OPEC Plus had needed to be pro-active as central banks around the world moved to "belatedly" tackle soaring inflation with higher interest rates.

Wednesday's production cuts of 2 million bpd are based on existing baseline figures, which means the cuts would be less deep because the cartel fell about 3.6 million barrels per day short of its output target in August.

Under-production happened because of Western sanctions on countries such as Russia, Venezuela and Iran and output problems with producers such as Nigeria and Angola.

Analysts from Jefferies said they estimated the figure at 0.9 million bpd, while Goldman Sachs put it at 0.4-0.6 million bpd saying cuts would mainly come from Gulf OPEC producers such as Saudi Arabia, Iraq, the United Arab Emirates and Kuwait.

 

OPEC Plus thought of production cut annoys US

OPEC Plus looks set for deep oil output cuts in its meeting today (Wednesday), curbing supply in an already tight market despite pressure from the United States and other consuming countries to pump more.

The likely cut could spur a recovery in oil prices that have dropped to about US$90 from US$120 three months ago due to fears of a global economic recession, rising US interest rates and a stronger dollar.

The cartel that includes Saudi Arabia and Russia, is working on cuts in excess of one million barrels per day (bpd). Reuters reports the cuts could be as high as two million bpd if reductions could include additional voluntary cuts by members such as Saudi Arabia or if cuts could include existing under-production by the group.

OPEC has been under-producing over 3 million bpd and the inclusion of those barrels would dilute the impact of new cuts.

"Higher oil prices, if driven by sizeable production cuts, would likely irritate the Biden Administration ahead of US midterm elections," Citi analysts said in a note.

"There could be further political reactions from the US, including additional releases of strategic stocks along with some wildcards including further fostering of a NOPEC bill," Citi said referring to a US anti-trust bill against OPEC.

Saudi Arabia and other members of the Organization of the Petroleum Exporting Countries and allied producers (OPEC Plus) have said they seek to prevent volatility rather than to target a particular oil price.

The West has accused Russia of weaponizing energy as Europe suffers from a severe energy crisis and may face gas and power rationing this winter in a blow to its industry.

Moscow accuses the West of weaponising the dollar and financial systems such as SWIFT in retaliation for Russia sending troops into Ukraine in February. The West accuses Moscow of invading Ukraine while Russia calls it a special military operation.

A significant cut is likely to anger the United States, which has pressured Saudi Arabia to pump more to pressure oil prices and reduce revenue for Russia.

Saudi Arabia has not condemned Moscow's actions and relations are strained between the kingdom and the administration of US President Joe Biden, who travelled to Riyadh this year but failed to secure any firm cooperation commitments on energy.

Saudi Aramco CEO and President Amin Nasser said that the spare production capacity is not the responsibility of Saudi Arabia alone.

Nasser made the remarks on Tuesday during his speech at the Energy Intelligence Forum 2022 in London. He added that the spare capacity amounts to 1.5% of global demand.

The oil market does not focus on the fact that global spare capacity to increase oil production is very low, Nasser said.

He clarified that the market focuses on what will happen to demand if there is recession in different parts of the world. He also added that they do not focus on the supply fundamentals.

Nasser stressed that Aramco maintained its market in Asia despite European demand, while he pointed out that the problem of Europe lies in gas and liquefied gas due to the lack of spare capacity.

During his speech, Nasser expected that the demand for oil would increase until 2030 and beyond. He also added that Aramco is on track to raise its capacity to 13 million barrels per day by 2027, which would cost billions of dollars.

The Aramco's CEO remarks came about 24 hours before the meeting of the OPEC Plus meeting that will be held on Wednesday in Vienna, which is its first attendance meeting since March 2020.

The alliance is expected to reduce production by at least 500,000 barrels per day, while other expectations indicate the possibility of reducing by more than one million barrels per day.