The conflict between Russia and Ukraine was heightened this week when Malaysia Air flight 17 was shot down by a missile strike over Ukraine on Thursday about 30 miles from the Russian border, killing all 298 people on board. The flight, which may “prove to be a turning point in the conflict between the countries,” originated out of Amsterdam and was headed for Kuala Lumpur. Both Russia and Ukraine are blaming each other, but Ukraine’s state security service said that it intercepted phone records from pro-Russian militants discussing the missile strike that knocked the Boeing 777 out of the sky.
The crash comes amidst aggressive U.S. sanctions designed to “inflict pain” on President Putin’s inner circle for supporting pro-Russian separatists in Ukraine. Begun before Malaysian Air flight 17 was targeted, the new penalties include Russian banks and energy and military firms, but spare Gazprom. U.S. officials say that Putin and Russia have a “clear choice to make between increased costs and sanctions pressure, or de-escalating,” their interference in Ukraine.
A 1975 ban on U.S. crude oil exports is being chipped away by government rulings that are allowing more and more exceptions. The Commerce Department will allow Enterprise Products Partners LP (EPD) and Pioneer Natural Resources Co. (PXD) to ship ultra-light oil, known as condensate, abroad. These exceptions may allow as much as 1.2 million barrels a day to be eligible for export. The ban, passed in response to the Arab oil embargo, greatly increased crude prices and created gasoline shortages in the U.S. Now, with horizontal drilling and hydraulic fracturing creating a surplus of crude oil along the Gulf Coast, federal policy makers are feeling pressure to ease restrictions and increase U.S. exports.
Also on the U.S. oil front, imports were at a two-decade low for June according to the American Petroleum Institute. Thanks to a surge in domestic production, imports were below 10 million barrels a day for 10 consecutive months, marking the lowest level of imports since 1993. Almost all aspects of U.S. production have increased: crude oil output is up 16 percent to 8.36 million barrels a day, the highest for June since 1986, natural gas liquids were at a record 2.94 million and gasoline production topped over 10 million barrels a day, which is a “record for June and the second-highest level ever.”
In the Middle East, the geo-cultural region known as Kurdistan may stand to benefit from the recent turmoil in Iraq. With “plenty of oil to support its political ambitions for independence,” Kurdistan is increasingly rejecting Baghdad’s claims over its oil. More than 20 foreign companies are exploring for oil and gas in the Kurdish region. With tremendous oil-production potential, the Kurdish government estimates its untapped resources may amount to as much as 45 billion barrels.
In Israel, Prime Minister Benjamin Netanyahu has ordered the Israeli military to “prepare for a wider ground operation against Palestinian militants in the Gaza Strip.” 2,100 air strikes over the past week and a half have failed to keep the Hamas-controlled area from mounting a counter-attack at Israel, so Israeli soldiers “backed by tanks, heavy artillery, aircraft and warships,” moved into Gaza yesterday. At least 264 Palestinians have been killed in the conflict. Until recently, when two Israelis were killed, their death count had been zero.
What’s good for the U.S. may not be good for Europe, at least in terms of energy production. The American shale gas boom may be placing 30 million European jobs at risk. With U.S. prices lower than their European counterparts, many petrochemical companies are leaving central Europe to take advantage of “ booming U.S. production of natural gas from shale rock formations.” Thanks to hydraulic fracturing and horizontal drilling, the U.S. has become the world’s leading producer of oil and gas.
By. James Stafford of Oilprice.com