February 27, 2023

One year on…

This week seemed more than 7 days…price action was difficult to follow… yet again market volatility seemed more about trading for the sake of it than with solid reason to invest… prices dipped mid-week and returned to their Monday starting point by Friday evening leaderless and seemingly lost as to what to do next. The week started in an unexpected way as the three main protagonists in the battle for a global blueprint for a new world order spoke to the planet, albeit with different goals. President Biden and Russian President Vladimir Putin faced off on the global stage Monday and Tuesday with dramatic speeches from Europe that framed the war in Ukraine as the battle for the future of the world order, with both men committing to a long fight ahead. China joined the jaw-jaw war games on Thursday, claiming honest broker status with a 12-point peace plan, the mainstay of which involved the West lifting all sanctions against Russia and at the same time declaring the China/Russia relationship was as “solid as a mountain.” note: Mountains are moving with climate change… Stay alert, President Xi!

Joe Biden positioned himself as close as he could be to Putin’s border since the war began one year ago with a surprise visit to Kyiv and later with a planned stop in Warsaw to reiterate a forceful message that Moscow’s military campaign in Ukraine is destined to fail. He arrived in Kyiv on Monday morning, days before the 24th of February, the first anniversary of Russia’s invasion of Ukraine and declared that Vladimir Putin had failed in his ‘war of conquest. His visit was shrouded in secrecy. He arrived after an hours-long train journey from Poland with a stripped-down press pool of just one reporter and a photographer. Air raid sirens blared across the besieged Ukrainian capital, although there were no reports of Russian missiles or air strikes. He met with President Zelensky at the Mariinsky Palace and announced half a billion dollars in extra assistance, including artillery, ammunition, more Javelins and Howitzers, as well as more sanctions on Russia to follow. In a speech, Biden said: ‘One year later, Kyiv stands. And Ukraine stands. Democracy stands. ‘He said Putin had miscalculated. “Russia’s aim was to wipe Ukraine off the map,” he said. ‘Putin’s war of conquest is failing. Russia’s military has lost half the territory it once occupied”

A day or so later, Vladimir Putin responded with the usual nuclear threats to the West… “Let me reiterate that they were the ones who started this war, while we used force and are using it to stop the war,” he said in remarks to the Federal Assembly, the country’s legislature. After having rattled the sabre for months, Putin raised further the prospect of nuclear escalation by announcing a suspension of Russia’s participation in the New START nuclear arms treaty with Washington, which is set to expire in 2026 (Russian officials were quick to clarify that Moscow was not abandoning the treaty, but its obstruction of treaty mechanisms and delay for follow-on talks is raising the risk of a new nuclear arms race.). President Putin further threatened an upscaling of nuclear weapons production via Russia’s Satan 2 hypersonic missiles capable of hitting 10 targets at once… some press reports suggest one such device was tested in Siberia during Joe Biden’s visit to Kyiv… but the device failed to activate. Putin also describes himself as a peacemaker in a war started by the West.

All of this happened this week, but oil prices looked away and planned instead for International Energy Week, which begins today.

This is a very difficult market to read. Plagued on the one hand by Russia apparently cutting crude-oil production but at the same time physically producing cargoes of crude oil at a record rate… OPEC too has increased production… It’s not easy to be bullish in such a scenario, but maybe the last threads of market price guidance going forward remain with understanding just how Europe copes with the loss of both Russian crude oil and petroleum products and how much Russian crude is taken by other countries/continents and at what price. According to Bloomberg, by the beginning of the year, Russia was selling crude at the following prices versus the $60 price cap:

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Baltic ports $59.86 per barrel,
Black Sea 63.34,
Pacific ports 82.24,
Arctic 79.31,
Druzhba pipeline 62.98,
China via pipeline 80.91…

Tough to pick out the sub $60 numbers there!!

Knee-jerk reactions to weekly changes in American crude oil stock levels (up again this week by 7.6 million barrels) and threatened interest rate rises by the Federal Reserve Bank are temporary hotspots in a market that is super hard to call for so many reasons. We are all getting used to the war and the circular rhetoric that surrounds it, as a result, oil markets are becoming dull and boring as traders and refiners alike go about their daily business with no wish to extend on that methodology for the time being, but as always expect the unexpected!


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