The Impact of the OPEC Plus Inclusive Cap on Oil Prices: The White House’s Concerns with Russia and the Invasion of Ukraine
The IEA says that the cut to production will be closer to one million barrels a day because most of the group aren’t meeting previous production targets.
Morgan Stanley analysts lifted their estimates for oil prices to $100 a barrel hours after the OPEC announcement. Any reversal will inevitably have an effect on gas prices and inflation.
According to Helima Croft, head of commodities strategy at the investment bank, a producer group might choose to cut production to try to signal that there is an effective circuit breaker in the market. The group was considering halving the supply by one million barrels a day, which would be around 1 percent of the global supply.
Russia’s war in Ukraine and the new price cap on oil by Europe are hanging over the energy market. 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 not happy. The president is disappointed by the shortsighted decision of the Organization of the Silk Road to reduce its production quota, while the global economy is dealing with the continued negative impact of Putin’s invasion of Ukraine, according to Brian Deese, the director of the National Economic Council.
In response to the OPEC Plus announcement, Biden administration officials said the president would order the Energy Department to release 10 million additional barrels of oil from the Strategic Petroleum Reserve in November. Earlier this week, the administration said it had no plans to extend a six-month effort to release one million barrels a day, which was scheduled to finish 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. It’s believed that the program could deprive the Kremlin of tens of billions of dollars a year. Some analysts say the cap would make it difficult to transport oil, and thus make prices go up. And it relies on the participation of non-E.U. nations that are still buying Russian oil.
There is a chance of a drop in global oil supply. Estimates for global oil demand have increased after Chinaopened its economy in December after almost three years of restrictions.
And the weakening global economy could undermine the Russian and Saudi-led effort to drive up prices. As economic growth slows, demand for oil would slacken.
In a sign of the significance of the announcement, Wednesday’s meeting was in person at the headquarters of the Organization of the Petroleum Exporting Countries in Vienna. Among those attending was Russia’s deputy prime minister, Alexander Novak, who has played a key role in fostering cooperation with other major oil-producing countries.
When citizens in Europe face a tough winter because of higher energy prices linked to the war in Ukraine, they will be embarrassed by the presence of Mr. Novak.
Some oil producers may see the price cap as a precedent that “might be an attempt to drive down prices more generally,” Mr. Bronze said. It may be that the worries about such a big step are the reason why it will be so unpopular in Washington.
At the news conference, Prince Abdulaziz denied any collusion with Russia, portraying OPEC Plus as a “band of brothers” interested only in preserving the stability of markets. “Where is the act of belligerence?” he asked.
The agreement that led to the creation of ‘Opec Plus’ is going to be extended for one year. The alliance, which started in 2016, had been scheduled to expire in December.
What Have We Learned About the Biden-Bin Laden Damned World? A Red Line in the Sand: Diplomacy, Strategy, and the History of Wars that Might Still Happen
The author of the book A Red Line in the Sand: Diplomacy, Strategy, and the History of Wars that Might Still Happen is David A. Andelman, a contributor to CNN and winner of the Deadline Club Award. He formerly was a correspondent for The New York Times and CBS News in Europe and Asia. His own views are reflected in this commentary. View more opinion at CNN.
While in the Middle East back in July, President joe Biden gave a fistbump to Mohammed bin Laden but it has now turned into a slap across the crown prince’s face.
The White House accuses Saudi Arabia of aligning with Russia as a result of the Riyadh’s decision to cut oil production by 2%.
There are a lot of issues at this moment. There’s the European Union, which is suddenly having to work out how it might still implement its price cap on Russian crude.
For now, the most immediate fallout will be on oil prices and revenues. Designed to spur a reversal of the trend that has sent oil prices plummeting to $80 a barrel from just over $130 a barrel in March, the impact on prices at the gas pump and on inflation in the United States on the eve of mid-term elections is already being felt.
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.
It would have no immediate impact, but could be part of a broader pattern of shifting world oil imports away from Russia. Venezuela was producing 3.8 million barrels per day in the 70’s according to Forbes. In August this year, that figure was down to 723,000 barrels, according to the Warsaw Institute.
With such substantial curbs – and now the rise in the price of oil that would have been a substitute for Russia’s natural gas in some parts of the world – other energy sources are suddenly beginning to look a whole lot more attractive, with potentially catastrophic impacts on the environment.
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.
Ro Khanna, who is from California, told CNN that he wants the Biden administration to stop sales of aviation parts and to stop Boeing and Raytheon from making sales to Saudi Arabia. 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 language came straight out of a GOP-sponsored bill in 2020 and makes it difficult for Republicans to vote no.
Oil prices in the United States as a tipping point for a global economy on the verge of recession: The role of the oil bust in 2020
According to a report by the Paris-based agency, higher oil prices may prove to be the tipping point for a global economy on the verge of recession.
The global oil demand growth forecast by the IEA was slashed by more than 20 percent because of continued downward revisions to global growth expectations. The International Monetary Fund said this week that for many people 2023 will “feel like a recession,” as it cut its GDP growth forecast to 2.7% from an earlier prediction of 3.2%.
US President Joe Biden told CNN this week that Washington needs to rethink its relationship with Riyadh after the cut, which will push up gas prices in America before the elections.
Saudi Minister of State for Foreign Affairs Adel al-Jubeir said the cut was intended to stabilize markets. Saudi Arabia hopes to make sure there are no erratic swings in the price of oil, according to one of their top diplomats.
Typically, higher oil prices send non-OPEC producers into action, particularly US shale companies. But they have been suffering from supply chain disruptions and cost inflation and have yet to announce big investments into production, according to the IEA.
The oil bust in 2020 is a factor playing into underinvestment. The early days of the disease led to a wave of bankruptcies within the oil and gas industry, as well as the lowering of the price of oil in the US.
European Union sanctions on Russian goods and sectors in response to the recent high-energy increase in the light of the September 11 European Energy Rate cut-off
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.
The EU has imposed sanctions on 1,206 people, 155 companies and frozen their assets since the beginning of the year. It has banned the trade of products in nearly 1,000 categories and hundreds of subcategories. It has placed a total embargo on Russian oil. About one-third of the bloc’s exports to Russia by value and two-thirds of imports have been banned.
But even now some goods and sectors remain conspicuously exempted. The European Union has made compromises to maintain consensus, as well as the intense back-room bargaining and arm- twisting done by some nations and private industry to protect sectors they deem too valuable to give up.
The Belgian government has been protecting the trade in Russian diamonds. The Greeks ship Russian oil unimpeded. France and several other nations still import Russian uranium for nuclear power generation.
Gasoline deflation is alive and well in the US, and the cost of crude oil and oil prices has fallen in the past four years
The cheapest US gasoline is giving relief to Americans who have spent the better part of four years dealing 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 could continue to help ease consumer inflation. The US consumer price index in October registered its lowest annual reading since January. The November data is coming next week.
As of this morning, both West Texas Intermediate futures and the global benchmark have dropped 10% or more, hitting their lowest levels of the year.
Plus, demand from China could rebound faster than expected as the country lifts coronavirus restrictions. Oil prices have fallen in recent months due to concerns about the economic impact of those restrictions.
Russian planes launched a wave of strikes on civilian infrastructure in an attempt to frozen Ukraine into submission during the winter months. The bombing campaign has made life in Ukraine miserable, but there are few signs of Ukrainians backing down.
At that time, Putin claimed that his troops were embarking on a “military operation” that would be over in a few weeks.
Russia’s biggest land war has resulted in a fundamental breakdown of human rights in the post-Soviet world: “war-against” Russia
The biggest land war in Europe since World War II has forced millions of Ukrainians from their homes and killed thousands of civilians.
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.
Draconian laws passed since February have outlawed criticism of the military or leadership. Nearly 20,000 people have been detained for demonstrating against the war — 45% of them women — according to a leading independent monitoring group.
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.
The state has also vastly expanded Russia’s already restrictive anti-LGBT laws, arguing the war in Ukraine reflects a wider attack on “traditional values.”
For now, repressions remain targeted. There are some new laws that haven’t been enforced. But few doubt the measures are intended to crush wider dissent — should the moment arise.
Leading independent media outlets and a handful of vibrant, online investigative startups were forced to shut down or relocate abroad when confronted with new “fake news” laws that criminalized contradicting the official government line.
Internet users are subject to restrictions as well. The ban on American social media firms took place 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. But state media propaganda now blankets the airwaves favored by older Russians, with angry TV talk shows spreading conspiracies.
Source: https://www.npr.org/2022/12/31/1145981036/war-against-ukraine-has-left-russia-isolated-and-struggling-with-more-tumult-ahe
The Russian Exodus During the Second World War I: The Progress and Misfortune of the Former Soviet Union and the Problems of Russia
Thousands of perceived government opponents — many of them political activists, civil society workers and journalists — left in the war’s early days amid concerns of persecution.
Hundreds of thousands of Russian men left their homes in September to avoid the draft as a result of Putin’s order to mobilize 300,000 additional troops.
It was part of a self-cleaning of Russian society from spies and traitors, argued Putin. Russian officials have suggested stripping those who left the country of their passports. Yet there are questions whether Russia can thrive without many of its best and brightest.
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.
The banking and trading markets of Russia appeared to be shaky during the initial days of the invasion. Hundreds of global brands, including McDonald’s and ExxonMobil, have reduced or stopped their operations in Russia.
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 briefings recounting endless successes on the ground. Putin, too, repeatedly assures that everything is “going according to plan.”
The length of the war suggests Russia underestimated the willingness of Ukrainians to resist.
Russian troops have proven unable to conquer Ukraine’s capital Kyiv or 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.
Moscow’s problems have been made worse by the annexation of four territories of Ukraine, as it hasn’t been able to take full control over the lands it now claims as its own.
The number of Russians who died is officially at just under 6,000, but it remains a taboo subject at home. Western estimates place those figures much higher.
A series of explosions, including along a key bridge connecting Russia to Crimea, which it annexed in 2014, have put into question Russia’s ability to defend its own strategic infrastructure.
Russia’s invasion has backfired in its main aim, which is to have NATO expand onto Russia’s borders.
In Soviet times, it’s unthinkable that longtime allies in Central Asia would criticize Russia’s actions because of concern for their own sovereignty. The countries of India and China have been buying discounted oil from Russia, but have stopped short of full backing of the campaign.
Source: https://www.npr.org/2022/12/31/1145981036/war-against-ukraine-has-left-russia-isolated-and-struggling-with-more-tumult-ahe
Delay of Russian State of the Nation Address after 10 Months of War and the Implications for the Russo-Ukraine War
A state of the nation address, originally scheduled for April, was repeatedly delayed and won’t 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.
The Kremlin has given no reason for the delays. 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.
Russia decided to reduce its output without consulting the group of producers, which includes Saudi Arabia, according to a report. 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 months as part of unprecedented Western sanctions aimed at reducing Moscow’s ability to fund its war in Ukraine.
Russian crude traded at a cheaper price than the international benchmark in the 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 country’s budget deficit was 2.3% of its GDP last year.