Unintended Consequences

On Wednesday, Zero Hedge reported the following:

As discussed yesterday in “Buyers Balk At Russian Oil Purchases Despite Record Discounts, Sanction Carve Outs” the bevy of Russian sanctions have had the unintended consequence of also freezing Russian oil exports – despite explicit carve outs in terms set by Western nations – as buyers balk and boycott Russian crude sales amid fears that the country’s energy supplies may eventually fall under a sanctions regime anyway, leaving buyers stuck with millions in barrels they can’t then sell to downstream clients.

Today was a clear example of just that: citing traders with knowledge of tenders, Bloomberg reported that Surgutneftegaz (better known as Surgut) failed to award two tenders with combined volume of 880k tons of Urals for March loading.

…In short, there is a sense across the petroleum supply chain that sanctions aren’t done yet or aren’t well-enough understood yet. That’s why things are getting blocked. 

Meanwhile, Energy Aspects estimates that 70% of Russia’s crude trade is frozen but that will drop to 20% when there’s greater visibility on sanctions.

While that’s a reasonable proposition but there is an x-factor: could the final sanctions package actually be even more punitive for the country’s exports? Even if 20% were to end up frozen, that would still be a very bullish final scenario for the oil market; as a reminder, Goldman recently noted that even assuming full Russian output, the market remains undersupplied and continued disruptions will push oil much higher.

So what does the market think? Well, the 10x increase in Brent $200 June calls in the past week should give you a sense of what may be coming.

This is one of those articles I am sharing without having a really good idea of what it says or what it means. However, it seems as if this is information worth noting as the price of oil and gasoline continue their upward climb.

Does This Make Sense To Anyone?

President Biden’s energy policies have been a disaster for America and for the world. We are no longer exporting enough fuel to Europe to counter the influence of the Russian oil and natural gas sales. We are no longer a net exporter of natural gas and oil, which impacts our economy. The closing of the Keystone XL Pipeline put a lot of people out of work and shifted the transport of oil to methods that are not as environmentally safe as a pipeline. The unscientific focus on climate change has destroyed the American economy and made the world less safe. Unfortunately, the Biden administration has chosen to double down on their energy policy rather than make the necessary course correction.

On Thursday, Breitbart posted an article illustrating the problem.

The article reports:

On Thursday’s broadcast of “CBS Evening News,” Secretary of State Antony Blinken responded to a question on whether the United States will cut off purchases of oil and gas from Russia over its invasion of Ukraine by stating that we’re trying to ensure “that we inflict maximum pain on Russia” while at the same time, “minimizing any of the pain to us.”

Host Norah O’Donnell asked, “Russia’s economy’s fueled by gas, and the U.S. is a consumer. So, would the U.S. consider cutting off oil and gas purchases from Russia?”

Blinken responded, “Well, what we’re doing, Norah, across the board, is making sure that we inflict maximum pain on Russia for what President Putin has done, while minimizing any of the pain to us.”

What Secretary of State Blinken did not say (for obvious political reasons) was that because America has stopped utilizing its own energy sources, we are financing the Russian attack on Ukraine. That is a disgrace.