Russia is saying they want unfriendly nations to pay their energy bills in rubles, says Phil Flynn of the PRICE Futures Group.
Yet seeing that Russia is being blocked in the international banking system, there may not be enough wheelbarrows to pay for these record oil and natural gas prices. Is there a wheelbarrow futures contract—maybe it’s time to go long! The Wall Street Journal reported, “Mr. Putin said Russia would refuse to accept payment for natural-gas supplies in currencies “that have compromised themselves,” including dollars and euros, and will switch to payments in rubles, state newswire TASS reported. “I have decided to implement a set of measures to transfer payment for our gas supplies to unfriendly countries into Russian rubles,” Mr. Putin told a government meeting. The Journal said that “Gas prices in Europe spiked after Mr. Putin’s remarks, with Europe’s regional gas benchmark, the TTF month-ahead contract, rising 19% before retreating and ending the day lower.
Brent Crude Oil (CL=F) prices also rose around 5% to above $120 a barrel.
Of course, there were other reasons for oil to rally. Perhaps credit must be given to a wildly bullish Energy Information Administration (EIA) report that is raising real concerns of a US energy space that is woefully undersupplied. While the Russian war with Ukraine may be having some impact on supply, the truth is we would be having supply problems, war or no war.
John Kemp at Reuters succinctly pointed out that US petroleum inventories outside the strategic petroleum reserve fell last week by another 7.0 million barrels this week to 1,137 million bbl. He also pointed out that commercial stocks have declined in 65 of the last 90 weeks by a total of 325 million bbl since the start of July 2020. That leaves oil inventories at the lowest level for this time of year since 2014.
Oil trader Tim Dallinger wrote that crude supplies drew 2.5 MMB. This includes an additional 4.2 MMB which was released from SPR. Without the SPR release, crude would have drawn 6.7 MB. That’s a staggering number for this time of year. The US built 4.4 MB on average this week during the 2015-2019 time frame. Zman’s Energy Brain pointed out that refinery throughout moved to new 2022 highs (in line with Zman’s short and shallow maintenance season thoughts), and is on its way to best levels since 2019 this summer timeframe.
Geologist Art Berman writes that the 2022 world oil supply-demand deficit is likely to be the largest in history.
The point is that data is speaking for itself. And while democrats are blaming energy companies for the price spike, the reality is it has been the green energy lobby and the politicians cutting off investment dollars into fossil fuels in favor of green energy sources that are not ready for prime-time usage and that is really the problem. Senator Sheldon Whitehouse, D-R.I. was quoted saying, “We’re hostages to the oil and gas industry which is now telling us that the solution for the hostages is to buy more oil and gas.” That is correct, because green energy funded alternatives have failed us. They have failed the American people and they have failed Europe. Yet the dems now want to double down on failing green energy technologies that are not ever going to be scalable enough to replace fossil fuels unless there is a technology breakthrough. Maybe the senator believes we can power the global economy with fairy dust and lucky charms.
It was the radical green energy agenda in Europe that allowed Russia to secure its stranglehold over the continent. Russia is continuing to use energy as an economic weapon against the region. Putin is betting that his oil and gas stranglehold over the continent will make Europe allow him to make ridiculous claims like wanting to be paid in rubles for his oil. Still Europe is talking about trying to find a way to sanction Russian oil and gas. The US has vowed to try to send more LNG gas to Europe.
The US Energy Secretary, Jennifer Graham, says that we are sending every bit of LNG to Europe that we can. But is that true? Is it possible that if the Biden administration didn’t fight against US oil and gas industry we could actually be producing more and have the ability to export more? Perhaps there would be more investment in natural gas and then Russia wouldn’t feel emboldened to take over a neighboring country.
Yet when you’ve spent a decade using a fantasy-based energy policy, it’s hard to cut off Russian oil supplies and gas supplies without shutting down your entire economy. OPEC officials have expressed their concern to the EU about a possible ban on Russian oil and is raising concerns that that oil cannot be replaced. UK Prime Minister Boris Johnson’s spokesperson said that the UK is not reliant on Russian gas but that the ramifications of Russia’s decision to price Russian gas in rubles are being monitored.
Diesel shortages continue to be the near-term concern for the market. There is also a lot of talk about some trading firms in trouble and there is no doubt that the liquidity in the oil and gas market is very thin. Algorithms have gone to the sidelines and there is a bigger risk but at the same time, bigger potential. Oil should be bought on pullbacks. The 120 area looks to be the next big target. Still, you could get a few dollar breaks before that happens. The biggest downside risk would be a potential Iranian nuclear deal but even though we keep hearing that, but we’re near the finish line every day that passes with no deal, and that seems to suggest that the odds are rising that no deal will get done!
The National Review writes that, “For those following the Iran nuclear talks in Vienna, the Biden administration’s negotiations have been a feat of concession and weakness. The deal on the table, which is being packaged as a return to the (also weak) 2015 JCPOA, is actually much weaker; it gives Iran a legitimate, quicker path to a nuclear weapon and frees up billions in sanctions relief. Until quite recently, this shameful capitulation of a deal has evaded the scathing headlines it deserves. But now, as the most shocking details come to light, the Biden administration will have to answer for its strategic failure and suffer the political consequences should the deal go through.
After a year of negotiations, the details of the agreement are mostly finalized and a deal could be imminent based on Iran’s recent release of hostages. The final snag is the question over the IRGC’s terrorist designation. On Monday, the Wall Street Journal reported that the “effort to revive the 2015 nuclear deal agreement now hinges on perhaps the most politically sensitive issue in the negotiations: whether to remove the US terrorism designation for Iran’s elite Revolutionary Guards.” The Journal reports that this contentious question could “cause a breakdown in negotiations,” according to senior US officials.
News of the IRGC designation broke on March fourth when Gabriel Noronha, a former State Department official, reported that the Biden administration was considering lifting sanctions on the Office of the Supreme leader and removing the IRGC’s foreign terrorist organization (FTO) label. The Biden administration put these offers on the table as early as spring 2021. The Journal reported that, “according to people close to the talks, the US team dangled the possibility of lifting the Guard’s terrorism designation last spring with the approval of some in Washington.”
Behnam Ben Taleblu, a senior fellow at the Foundation for Defense of Democracies, told National Review that Persian outlets reported the lifting of the IRGC’s FTO label and the end of sanctions on the Office of the Supreme Leader under Executive Order 13876 (which punished the sponsorship of terrorism) in summer 2021. “If reports are to be believed about how early the Biden administration sought such a promissory note, then it would be yet another strike against its Iran policy,” said Taleblu. The strategic consequences for Biden’s potential capitulation would be far-reaching. Aside from empowering Iran with billions in sanctions relief that will flow to terroristic proxies, the impending deal is already alienating key partners and allies. As I wrote on Monday, Israel has come out against the deal while Saudi Arabia and the UAE—both frequent targets of Iran-backed attacks by Houthi rebels—have waved off Biden’s requests for more oil as the price at American pumps skyrockets.
Biden’s weakness is driving Middle Eastern partners into the hands of our adversaries. Taleblu shared that Washington’s approach to Iran has consequences “particularly for nations that live on the front lines.” Consequences include China’s growing economic and security relationship with the Gulf States and the UAE’s budding relationship with Syrian dictator, Bashar al-Assad. The Biden administration continued to push the deal, insisting that preventing a nuclear Iran should be the top priority before anything else. Ned Price, spokesperson for the State Department, and Wendy Sherman, the US deputy secretary of state, have both claimed that Iran would have more power to cause regional instability with a nuclear weapon. This is a miscalculation; Iran’s nuclear program is but a facet of its regional ambitions.
Spreading its Axis of Resistance throughout the Middle East by means of proxy forces is Iran’s main goal.
The nuclear program is another point of leverage in its bid to be a regional power.
The sum of these consequences is a grave weakening of the US deterrent and American credibility. In his recent op-ed on the Iran deal, Bret Stephens wrote that America’s biggest strategic challenge is a “perception, shared by friends and foes alike, that we are weak.” Stephens reasons that if the Biden administration goes through with the Iran deal, it will negate every sign of strength it has shown supporting Ukraine and cause irreparable damage to US geopolitical leadership. He characterizes the current perception of the US as “diffident, distracted, and divided.” The Iran deal would be the nail in the coffin; Biden’s power projection has been wholly inconsistent.
For instance, while Biden talks tough on Russia in regard to Ukraine, he’s allowed the Kremlin to be a main negotiator in the proceedings and to undertake a massive role in overseeing Iranian uranium and enrichment facilities. The Biden administration is still toying with the IRGC concession after the IRGC themselves claimed responsibility for a ballistic-missile strike on Erbil, next to a US consulate base. While the outcome of Biden’s negotiations was always going to be strategically detrimental, it’s beginning to be a political loss as well. As a result, the administration has resorted to more uncertain tone regarding negotiations. Republicans, of course, have vocally opposed the deal, just as they did with Obama’s 2015 JCPOA. John Bolton slammed the deal yesterday in the Washington Post. He, like many Republicans, demanded that the Biden administration submit any deal as a treaty for Senate approval as opposed to an executive order.
Republicans are predictably enraged by any delisting of the IRGC. Senator Jim Risch (R., Idaho), the leading Republican on the Foreign Relations Committee, said yesterday that he’s “appalled at the concessions,” explaining that a “deal that provides $90-$130 billion in sanctions relief, relieves sanctions against Iran’s worst terror and human rights offenders, and delists the Iranian Revolutionary Guard Corps does not support our national-security interests.” But Biden’s main political trouble lies with the Democrats, who have been relatively silent until the IRGC designation came to light. After a closed-door briefing on Tuesday about Iran’s shrinking breakout time, Senator Ben Cardin (D., Md.) said he “certainly would very much like to maintain that [the IRGC] are a terrorist organization, because they are a terrorist organization [. . .] that designation should remain.”
Senate Foreign Relations Committee chairman Bob Menendez (D., N.J.) has expressed hesitancy as well. Last Thursday, he told The Hill that he doesn’t have enough details to take a stance, but expressed that it “would be a problem” if the deal “somehow gives relief to Iran and if somehow Russia gets any benefit from it” (both of which would occur).
Given this new wave of bipartisan hesitancy, the Biden administration has markedly changed its tone regarding the deal. Last week, when asked about the state of negotiations after the ballistic missile strike in Erbil, national-security adviser Jake Sullivan did not take a nuclear deal off the table: “The only thing more dangerous than Iran armed with ballistic missiles and advanced military capabilities is an Iran that has all of those things and a nuclear weapon.” Yesterday in a press briefing, he sounded less certain: "We believe that if there is an Iran nuclear deal that meets the standards the President has set to verifiably block the pathway of Iran to get to a nuclear weapon and put this program back in the box after President Trump let it out of the box when he left the deal back in 2018, we will do that deal because we believe it is in the American national security interest to do so. But we will not do that deal until it meets those objectives."
Ned Price also switched up his tone. On March 16, after a stall in negotiations, Price was asked about remaining issues, saying they “want guarantees from the US [. . .] against another policy change, and they want the IRGC to be cleared of being named a terrorist group.” Price said, “We do think the remaining issues can be bridged.” On Monday, he was no longer trying to sell the deal: “I want to be clear that an agreement is neither imminent nor is it certain.” He said the US is “preparing equally for scenarios with and without a mutual return to full implementation of the JCPOA.”
Natural gas is in breakout mode. We get the report today! Buy breaks.
Learn more about Phil Flynn by visiting Price Futures Group.
