I’ve always said, ‘never trust someone who wears night vision glasses during the day – or night!’
For this report, I will dispense with the hand wringing on supply and demand, and how it affects your rack or pump price. Having said that, I will diplomatically reverse course by also saying that the overall supply and demand picture is still a major factor in the end price of refined products.
But now it’s all about the supply that has taken over control because we are losing control of it.
“Control,” for the time being, is in the hands of the man who never blinks – the Russian president.
The invasion of Ukraine has set off immediate panic buttons in the energy sector that will have an equally immediate effect on all energy commodity prices. The threat, and now enactment of sanctions has not deterred Vladimir Putin on his quest for that windmill of power.
And no one seems willing to stop him. And will nothing stop the knee-jerk price spikes because of this morning’s tragic invasion?
What will sanctions on Russia’s crude oil exports do?
First, that puts U.S. inventory supply behind the 8 ball. Counter to the wildly publicized belief that the U.S. is not energy independent when it comes to fossil fuels. Today’s EIA report confirms this with the U.S. importing crude at the rate of 6.8 million bpd.
Where does this crude come from? Number 1 is Canada; Number 2 is Saudi Arabia and guess who Number 3 is: Yep, Russia.
This means with sanctions on Russian crude, the supply picture for U.S. inventories gets even darker. So, what are the alternative supply sources?
If you look at OPEC and OPEC + then things look tight because the latter is just Saudi Arabia and Russia. Even before the invasion of Ukraine, OPEC + ignored requests from the U.S. to increase crude production to lower politically sensitive pump prices. If even more pressure is applied by the U.S. on the Saudis to increase crude supply, then the Russian president may play his ace and break way from OPEC therefore collapsing the CARTEL.
If Russia withdraws its crude oil input from OPEC, in other words Russia sanctions OPEC, then the spike in crude prices you see today will look like a bargain when Russian sanctions are applied.
We may get to the point where pump prices are so politically embarrassing that the politicians decree that gasoline and diesel be priced by the half litre.
So, is your car half full, or half empty?
– Roger McKnight – B.Sc., Senior Petroleum Analyst
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