World leaders boldly came up with a plan not to take any responsibility for the economic hardships the world is going to face. When in doubt, just blame it on Ukraine. The Wall Street Journal reported that, “Leaders of the Group of 20 countries unanimously endorsed a declaration saying the war in Ukraine is hurting the global economy, a message that showed Russia’s increasing isolation on the world stage as the costs of the conflict mount.”
So, in other words, do not try to blame Europe for idiotic green energy policies or massive out-of-control money printing for inflation, just blame it on Ukraine. Not only does that give cover to world leaders, it’s so very convenient.
President Joe Biden, of course, has blamed Ukraine for most of his problems when it comes to inflation and gasoline prices. It was never about his anti-fossil fuel agenda. It was either greedy oil companies or OPEC but now just blame it on Ukraine. Besides, it gives Biden some cover and he can say then all the leaders of the group of 20 countries agreed that it wasn’t his fault, it was the war in Ukraine. The Ukraine war is driving energy prices and hurting the economy. That is sort of like when he got more than 50 former senior intelligence officials to sign a letter outlining their belief that the disclosure of emails belonging to Joe Biden’s son Hunter “has all the classic earmarks of a Russian information operation.”
Yet, the risk of Russia’s war in Ukraine became real to oil traders yesterday, when it was reported that a missile fired allegedly from Russia hit Poland and killed two people. That snapped the oil market out of its malaise. It was also a reminder that when you look at the global supplies of oil and distillate fuels, there really is no room for error. Yet, Russia immediately claimed it never targeted Poland. And now, the evidence seems to back what Russia was saying.
The Wall Street Journal reported: “The missile that crashed in Poland on Tuesday, killing two people, was from a Ukrainian air-defense system, according to two senior Western officials briefed on preliminary U.S. assessments, but Poland is continuing its own investigation of the explosion. The initial findings were being discussed Wednesday at an emergency meeting at the North Atlantic Treaty Organization, where ambassadors from the alliance’s 30 members and candidates Sweden and Finland reviewed the intelligence and considered their options.”
We also saw a drone attack overnight on an oil tanker. The Wall Street Journal reported, “an Israeli-owned oil tanker was hit by a suspected Iranian drone Tuesday night in the Gulf of Oman. According to the reports, it created a hole in the ship but caused no injury or deaths." The Journal said the 600-foot Pacific Zircon was travelling through the Gulf of Oman but no oil was spilled. The larger issue is tension between Iran and Israel is extremely high. Iran is facing a lot of political pressure at home. This could be a sign that Iran is trying to start a provocation with Israel to take the attention off of the hardliner’s crackdown on the Iranian public.
Despite all this risk to supply and inventory low, it’s surprising that the price of oil isn’t stronger than it is. The oil market has been reluctant to rally even though we saw an extremely bullish weekly American Petroleum Institute Report and growing risk to supply. The API reported a 5.835-million-barrel drawdown in crude oil supply. That is huge because the SPR releases of 5.4 million barrels means the draw would have been close to 10 million barrels last week. Distillate fuel increased by 850,000 barrels, which is not enough to give us comfort as winter approaches. The gasoline supply increased by 169,000 barrels.
Perhaps the reason why oil prices aren’t acting better could be that we’re going to hit a brick wall when it comes to the economy. But let me see, the stock market rallying and the dollar falling, the weakness in oil might be tied into today’s options expiration. The market may feel it’s well supplied today, but if you look at the back end of the curve, we’re seeing that start to strengthen, which means the market is suggesting that we may have dodged a bullet today but face significant problems going forward.
The natural gas world is awaiting news when the Freeport LNG export terminal will reopen. The company Freeport LNG Development, L.P. (Freeport LNG) published yesterday the results of an independent, third-party root cause failure analysis (RCFA) report on the June 8, 2022 incident that occurred at its liquefaction facility. Yet, the market at this point is more interested in when it reopens. EBW Analytics said, “Rampant Freeport LNG rumors have precipitated tremendous intraday volatility for NYMEX futures over the past week. Freeport notified customers not to anticipate cargoes in November or December—offsetting bullish weather shifts. At the same time, the market is abruptly transitioning from the largest fall seasonal storage build in history to a sharp near-term cold. In our view, the renewed focus on rebuilding storage deficits increases exposure to the near-term upside. Still, NYMEX futures are being priced off the chances for a low probability, high magnitude price shock later this winter. It will ultimately require pervasive cold to justify lofty winter contract risk premiums—or natural gas prices may plunge.