Russia's invasion of Ukraine on Thursday shocked the world and sent oil prices soaring above $100, the relatively tepid reaction of Western leaders has brought oil prices back down on Friday as it becomes clear that Russia's energy industry is unlikely to be sanctioned.
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Friday, February 25th, 2022
One might think that Russia’s invasion of Ukraine would have triggered a much stronger response from the international community. Instead, there seems to be hesitancy and squabbling between European leaders. The fact that oil prices are hovering around $100 per barrel and gas prices have skyrocketed to $50 per mmBtu will certainly have played a role in feeding this hesitancy. It seems that Russian oil and gas flows are too important to international markets for Western powers to target them with sanctions. The lack of sanctions on the energy industry is the main reason we have seen oil prices fall back on Friday.
Russia’s Invasion into Ukraine Lifts Commodities. The largest war in Europe since WWII sent commodities worldwide into an upward spiral, with European gas soaring to the equivalent of $50/mmBtu, oil above $100 per barrel, and wheat trading at all-time highs.
Bank Reluctance to Deal with Russia Dents Prices. Russia’s flagship Urals grade collapsed on the back of the Kremlin-led invasion into Europe as leading buyers of the barrels were unable to open letters of credit in Western banks to guarantee payment, with banks wary of potential sanctions. Related: Don't Count On OPEC To Bring Oil Prices Down
Iraq Wants Partners to Develop Oil Frontiers. The Iraqi government is negotiating a deal with Saudi Aramco (TADAWUL:2222) and Halliburton (NYSE:HAL) to develop and operate oil and gas reserves in the country’s westernmost Anbar province, a region largely undeveloped after its 2017 retaking from the Islamic State.
Disruption Fears Push Asian LNG Prices Higher. Amid concerns that Russia’s invasion might disrupt global LNG flows as Europe tries to ensure stable gas supply, spot Asian LNG prices shot up some 30% this week, with the JKM LNG market already trading above $37 per mmBtu.
Iraq Halts Major Field for Sudden Maintenance. Iraq has temporarily haltedproduction at its 400,000 b/d West Qurna-2 field, reportedly to connect new wells and new pipelines, presumably resulting in another month-on-month decline in total Iraqi crude production.
US Offshore Wind Auction Draws Record Interest. The first offshore wind lease sale under President Biden, offering 6 leases off the coasts of New York and New Jersey, exceeded all expectations and raked in $3 billion in bids so far, with Equinor (NYSE:EQNR), BP (NYSE:BP) and EDF (EPA:EDF) vying for the leases.
Nigeria Sues JP Morgan for $1.7 Billion. Nigeria’s government launched a $1.7 billion lawsuit against US investment bank JP Morgan Chase (NYSE:JPM) for its alleged negligence in transferring funds for an oilfield license won by Shell (LON:SHEL) and ENI (NYSE:E) to a company owned by the country’s former oil minister instead of government accounts.
TotalEnergies Reports Huge Namibia Discovery. French oil major TotalEnergies (NYSE:TTE) made a significant discovery of light oil off the coast of Namibia, with the much-anticipated Venus-1 wildcat unearthing a net pay of 84 meters of high-quality sandstone reservoirs.
ExxonMobil Gets Out of Shallow Water Nigeria. Nigeria’s Seplat Energy (LON:SEPL) bought the entire share capital of ExxonMobil’s (NYSE:XOM) shallow water business in Nigeria for $1.28 billion, marking the US major’s conclusive exit from the African country.
China Tinkers with Coal Prices Again. Amidst once-again soaring coal prices, China’s economy planner NDRC has set a “reasonable” price range for the country’s benchmark 5500kcal thermal coal at Qinhuangdao hub, at $90-120 per metric tonne, arguing this bandwidth is mutually acceptable for both miners and power generators. Related: Shell’s Gas Trading Booms While Oil Trading Slows
Anticipating Deal Breakthrough, Iran Starts Hoarding Crude. According to vessel-tracking data, the total amount of oil stored on tankers has increased by 30 million barrels over the past three months, with Iran building up a flotilla of anchored VLCCs off its coast that could be activated as soon as sanctions are cleared.
Saudi Aramco Is Having the Time of Its Life. Despite news circulating that Saudi Aramco (TADAWUL:2222) is continuously underperforming its OPEC+ production target, the Saudi NOC has seen its shares rising to an all-time high ($11.3 per share) on the back of Russia’s invasion, gaining more than 16% year-to-date.
Ecuador Gives Amazon Drilling Deal to China. China’s state-owned CNPC landedthe first drilling contract in Ecuador’s Ishpingo oilfield, located in the environmentally sensitive Yasuni National Park, seemingly forming a part of Quito paying back its plentiful debts vis-à-vis China.
Aluminum Prices Drop Off Record Highs. After concerns about Russian supply being potentially sanctioned pushed aluminum prices to an all-time high of $3,480 per metric tonne this week, Friday trading saw them drop off once it had become known that the EU/US will not sanction aluminum flows.
By Tom Kool for Oilprice.com
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However, what is accelerating the decline in oil prices is the fact that the United States and the European Union (EU) haven’t imposed sanctions on Russian oil and gas exports.
The reason is that such sanctions would have caused oil and gas prices to rise further and would have harmed the economies of those who are imposing them since the United States and the EU are among the world’s largest importers of oil. Russia would have shifted all its oil and gas exports to China, the world’s largest energy market.
Dr Mamdouh G Salameh
International Oil Economist
Visiting Professor of Energy Economics at ESCP Europe Business School, London