Russian Raking It In. The Energy Report 02/28/2023

Oil is popping off Russian oil comments surrounding its production cut as a false sense of security has blanketed Europe’s surrounding victory over the global energy crisis. Gazprom Neft Chief Alexei Miller (Chairman) Alexander Dyukov in a meeting in Iran said that he predicts that oil will be in a range between $80-$110 per barrel is the predicted oil price range in 2023. He also defends Russian oil production cuts. He said that, “the world oil market is currently in surplus, he added, noting that the decision to cut oil production in Russia in March is aimed at balancing it. He also said to get ready for more volatility, so you had better buckle up.

Mr. Dyukov also is right about volatility as the oil market can’t decide if weak economic data should be bullish or bearish. Yesterday Dan Molinski at Dow Jones reported that, “US crude-oil prices are extending earlier declines, recently down 0.8% at $75.72 a barrel after a January report on US durable goods didn’t paint the rosiest of pictures for industrial activity, or more specifically the transportation sector, which accounts for two-thirds of all oil demand. The Commerce Department report showed an overall 4.5% month-on-month decline in new durable goods orders, but a 13.3% drop in new transportation equipment orders. That was due mostly to volatile nondefense aircraft and parts orders, but less-volatile motor vehicles and parts orders stayed sluggish, showing a paltry 0.2% increase in January after a 0.6% rise in December and no growth in November.

Yet previously the market was worried that the economy was too strong based on home sales and stronger than expected consumer confidence and jobs. That was a sign that the Fed wants to be more aggressive with interest rates that increased the value of the dollar. Make up your mind. This Dr. Jekyll and Mr. Hyde’s reactions to data that is too hot or too cold will soon change as the reality that demand will soon rise and supplies will fall as refinery runs and China ramps up. That is why I strongly recommend hedging before things start to heat up.

Russian oil revenues are much better than previously reported. SSRN reported that as sanctions on Russian energy were only implemented towards the end of 2022—and as global prices for oil and gas soared—Russia’s goods exports reached a record $532 billion in 2022, resulting in an all-time high trade surplus of $316 billion. Russia was able to redirect crude oil exports from Europe to alternative markets such as  India, China, and Turkey with no loss of volumes, albeit at the cost of accepting discounts in a subset of markets where the EU embargo has dramatically lowered demand (i.e., shipments from Baltic and Black Sea ports). This curbed Russian oil export revenues in 2022, which would have been considerably larger without discounts. This also suggests that Russia, at least initially, chose to not reduce volumes in the face of downward pressure on prices. Surprisingly, we do not find crude oil discounts as large as those reflected in Urals prices: in the post-embargo/price cap period, the average export price for Russian crude oil stood at around $74/barrel based on our data—compared to Urals at $52/barrel.

Crude oil inventories should get their first drawdown this year and should lead to a long trend of falling US oil supply. We won’t have SPR oil to back us up much longer.

Fox Business reported that Biden’s favorite anti US oil company talking point is just wrong. Argus Media also reported that Joe Biden’s repeated claim that oil companies are sitting on 9,000 federal drilling permits overstated the backlog of unused permits, according to new data.

Oil and gas operators only had 6,650 approved but unused drilling permits on federal and tribal lands as of 31 January, according to the US Bureau of Land Management’s (BLM) latest data. The government’s tally of unused drilling permits was overstated, an error caused by a “reporting discrepancy” arising from a transition to a new database in 2020, BLM said today. The 9,000 tally became a core talking point for the White House last summer, as administration officials attempted to blame the oil industry for a spike in gasoline and oil prices at the time. Biden argued the industry was intentionally holding back on a new production as a way to inflate their own profits.

“They have 9,000 permits to drill,” Biden said last June. “Why aren’t they drilling? Because they make more money not producing more oil.” The White House said its criticisms of the oil and gas sector are still valid, even if there are fewer unused federal drilling permits than it stated before. They also stand by forcing people to get vaccinated and covering up evidence that the covid 19 virus most likely came from a lab in Wuhan China. And covering up that the vaccine actually would not stop you from getting covid as they claimed.

There is global importance of the US as a natural gas producer to the world and the reality that usage of natural gas is not going away anytime soon. Dow Jones reported that Cheniere could be included in the S&P 500. Dow Jones said that shares of Houston-based Cheniere Energy, the largest US LNG producer and the world’s second-largest operator, may be included in the S&P 500, says Cowen. “It is unclear how quickly the name could be included in the index, though the market is likely to find out March 3 when new adds are announced.

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Phil Flynn

The PRICE Futures Group

Senior Market Analyst & Author of The Energy Report

Contributor to FOX Business Network

 

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