Oil prices are pulling back on reports that Russia is pulling its troops from Ukraine. Russian Foreign Minister Larkov says that Russia has completed its drills, easing concerns of an imminent attack. There was also a report that Igor Konashenkov, a spokesman for the Russian Ministry of Defense, said that the troops who recently were at the border with Ukraine had begun their move back to their military garrisons.
Yet there still has to be confirmation by Nato of a troop withdrawal, and this is a market that is moving on headlines both bullish and bearish.
Yesterday, oil soared on comments made sarcastically to a reporter by Ukraine President Volodymyr Zelensky. He joked that he got a message that an attack would start Wednesday and caused oil prices to surge.
A day later, more comments by the Russian Foreign minister are causing prices to fall. The key question for this market is how much Ukrainian war premium is.
If Russia does pull back, can oil fall $10 or $20?
Whatever the answer is, the reality is that when they find that number, the oil will resume the rally. I believe the risk premium is probably closer to $10.00 a barrel, yet the market will recover whatever it is.
Global oil inventories were tight before this tension and will be tight after things hopefully calm down. The situation in Europe has unmasked the silly and ill-advised energy transition. It’s almost amazing to me that they are trying to frame this green energy transition disaster by saying the reason energy is failing across Europe is that they didn’t make the transition quickly enough. Maybe that kind of hyperbole would create enough wind to make the windmills blow like they didn’t in the UK.
There are signs that supplies at the Cushing, Oklahoma delivery point are continuing to fall and demand is still rising and should rise more in the coming weeks. We will get a sense of that tonight when we get the American Petroleum Institute (API) report that should show another crude oil draw.
This week I am looking for crude oil inventories to fall by 2.5 million barrels, and that is even with another big release from the strategic petroleum reserve. I also look for gasoline to fall by 1.0 million barrels. With all the cold weather, distilling inventories should also fall by 3.0 million barrels. We should get a slight uptick in refinery runs but only increase by 0.5 percentage points.
Oil also may get support from a report that Libyan oil workers are threatening to shut down exports from the Marsa el-Hariga terminal in the east of the country at the end of this month if state-owned NOC subsidiary Agoco does not meet their pay demands, a shipping source said.
The other report that may move gasoline prices higher is that the Biden administration is seriously considering a federal gas tax holiday until the midterm elections. After policies that contributed to almost a dollar a gallon increase in price, I hope America enjoys its 18.4 cent price rebate. Yet the gas tax holiday will backfire as it will only keep gasoline demand strong, and we won’t see a demand response from higher prices.
It’s always funny when politicians that create policies that raise the prices for oil and gas then have to backtrack and cut into the gas tax, which is supposed to fix roads and bridges to offset the anger from voters. The democrat party owns these higher prices with their anti-fossil fuel agenda. Biden’s policies are costing Americans dearly.
The demonization of oil and gas investment is already showing its ugly head at the gas tanks and geopolitical risk. If you’re worried about being able to afford your gasoline bills or your heating bills, you can always get a job at a solar plant or perhaps a wind turbine farm.
Natural gas has been moving on cold weather and this new Russia Ukraine cold war. Natural Gas Intelligence says that the European weather model trended colder over the weekend, showing chillier temperatures moving into the northern part of the Lower 48 around Feb. 24-26 to drive “closer to seasonal demand,” according to NatGasWeather. However, the firm said there was disagreement between the American and European data sets over the weekend, with the American model extending warmer trends during the Feb. 22-28 time frame.
The market has responded to every change of tone in the talks between Russia and the West over Ukraine. Bloomberg reports that Benchmark European gas prices fall as much as 10%. That’s because Russia is Europe’s top supplier of natural gas and inventories are low.