EU oil ban and price cap are costing Russia EUR 160 million per day

Further measures can multiply the impact

As the sanctions and the costs of the invasion of Ukraine take their toll on Russia’s economy, the country is more dependent than ever on revenue from fossil fuel exports. The EU has taken massive steps over the past year to cut off its dependence on fuel imports from Russia and cut off financing for the Kremlin’s unprovoked and illegal assault against Ukraine and Europe.

The short-term windfall generated to Russia by sky-high fossil fuel prices in 2022 is starting to wear out, in part due to reductions in fossil fuel consumption prompted by the high prices. Further cuts to Kremlin’s revenue will therefore materially weaken the country’s ability to continue its assault and help bring the war to an end. CREA’s briefing assesses the impacts of measures taken by the EU and Ukraine’s other allies to date, and identifies further options to drain Kremlin’s war chest.

The EU oil ban and price cap are costing Russia an estimated EUR 160 mn/day. The fall in shipment volumes and prices for Russian oil has cut the country’s export revenues by EUR 180 million per day. Russia managed to claw back EUR 20 million per day by increasing exports of refined oil products to the EU and to the rest of the world, resulting in a net daily loss of EUR 160 million.

The International Monetary Fund  expects a third of the world’s economies to slip into recession this year

Brent crude has crashed from over $82 per barrel to some $78

After a sharp drop in the first trading days of the new year, oil prices are climbing back up but the upside potential remains limited in light of the latest economic news updates and a warmer-than-usual winter in the northern hemisphere. After crashing from over $82 per barrel to some $78, Brent crude is today on the mend, inching closer to $79 and West Texas Intermediate is moving to $74. However, the economic outlook is quite bearish.

First, earlier this week, the head of the International Monetary Fund said she expected a third of the world’s economies to slip into recession this year. This immediately weighed on prices and will continue to depress them in the absence of any evidence that counters this outlook.

Then, the December reading of the U.S. purchasing managers index turned out to be lower than expected, at 48.4 versus an expected 48.5. Despite the minor difference, it was enough to deepen the economic gloom that features expectations of weaker oil demand, not least because it was the second consecutive month of declines.

Meanwhile, covid infections are on the rise in China and worry abounds that this will delay the recovery of the global economic powerhouse despite the government’s U-turn on its zero-Covid policy.

Oil falls over 3%

Data raises Fed interest rate worries 

Oil prices fell over 3% on Monday, following U.S. stock markets lower, after U.S. service sector data raised worries that the Federal Reserve could continue its aggressive policy tightening path.

Brent crude futures settled down $2.89, or 3.4%%, at $82.68 a barrel. West Texas Intermediate crude (WTI) fell $3.05, or 3.8%, to $76.93 a barrel. Both benchmarks had earlier risen more than $2, before reversing direction.

During the session, WTI’s front-month contract began trading lower than prices in half a year , a market structure called contango, which implies oversupply. U.S. services industry activity unexpectedly picked up in November, with employment rebounding, offering more evidence of underlying momentum in the economy as it braces for an anticipated recession next year.The news caused oil and stock markets to pare gains.

German Economist Sues OPEC due to Violation of Antitrust

The judge has ordered OPEC to file a document naming their lawyers for the case

A German economist has filed a lawsuit against OPEC with a Berlin court, accusing the cartel of pushing up the prices of the gasoline and heating oil he is buying, Bloomberg Opinion columnist Javier Blas reports—and despite the paltry sum, the suit could end up costing OPEC more than it can afford.

Armin Steinbach, Professor of law and economics, is suing OPEC for damages for $50 (50 euros), plus interest, alleging that OPEC is an illegal cartel operating to drive up oil prices. The court has allowed the case, which is a rare legal challenge against OPEC, despite decades of one-and-off debates in the United States about a bill that would allow lawsuits against OPEC producers.

“I hope OPEC reacts soon to the court order. Ignoring court orders is not smart strategy in dealing with German courts,” the German plaintiff, Steinbach, tweeted on Monday. In his claim, Steinbach had written that he was seeking damages “due to violation of antitrust law.” “If my lawsuit is successful, it would be recognized for the first time in court that OPEC is a cartel,” Steinbach told German business daily Handelsblatt last week. “Then every German could sue OPEC for damages,” he added.

Such a precedent could have legal consequences, although countries, including the U.S., have been wary of removing the sovereign immunity for countries to be sued, for fear of retaliatory lawsuits.

Oil giant Saudi Aramco’s quarterly profit surges 39%

Net income rose to $42.4 billion for the quarter 

State oil giant Saudi Aramco reported a 39% rise in net income for the third quarter year-on-year, on the back of higher crude prices and tightening global supply.

Net income rose to $42.4 billion for the quarter, up from $30.4 billion the previous year and just above expectations. The Saudi company also reported an increase in free cash flow to a record $45 billion from  $28.7 billion one year prior and paid out its second-quarter dividend of $18.8 billion. Its third-quarter dividend of the same amount is due to be paid out in the fourth quarter.

In a statement, Aramco CEO and President Amin Nasser said the earnings and cash flow figures “reinforce our proven ability to generate significant value through our low cost, low-carbon intensity upstream production and strategically integrated upstream and downstream business.”

Oil prices fall

U.S. inflation still hot

Oil prices declined on Tuesday, driven by a hotter-than-expected U.S. inflation report. The West Texas Intermediate for October delivery decreased 47 cents, or 0.5 percent, to settle at 87.31 U.S. dollars a barrel on the New York Mercantile Exchange. Brent crude for November delivery lost 83 cents, or 0.9 percent, to settle at 93.17 dollars a barrel on the London ICE Futures Exchange.

The above market reactions came as high U.S. inflation increased the likelihood for another big rate hike from the Federal Reserve, which could subdue demand for energy.

The U.S. Labor Department reported Tuesday that the country’s consumer price index (CPI) rose 0.1 percent in August for an 8.3 percent year-on-year increase. The core CPI, which excludes food and energy, rose 0.6 percent for a 6.3 percent year-on-year increase. The readings were higher than market expectations.

Crude prices crashed by more than 5% on Monday morning

 New Data Shows China Economy Unexpectedly Deteriorated Last Month

Oil prices fell by more than $4 a barrel on Monday on demand fears as disappointing Chinese economic data renewed global recession concerns. Brent crude futures fell $4.35, or 4.43%, to $93.80 a barrel by 1351 GMT after settling 1.5% lower on Friday. U.S. West Texas Intermediate crude was down $4.23, or 4.59%, at $87.86 after dropping 2.4% in the previous session. Brent futures were close to their lowest since before Russia sent troops into Ukraine on Feb. 24, while WTI futures touched their lowest on Monday since early February.

Brent crude open interest this month is down by 20% from August last year. “Open interest is still falling, with some (market players) not interested in touching it because of volatility. That is, in my view, the reason resulting in higher volumes to the downside,” UBS oil analyst Giovanni Staunovo said, adding that the trigger for the drop on Monday was weak Chinese data. The central bank in China, the world’s largest crude importer, cut lending rates to revive demand as data showed the economy slowing unexpectedly in July, with factory and retail activity squeezed by Beijing’s zero-COVID policy and a property crisis.

The US economy shrank 1.6% in the first quarter

First quarter of 2022 marked the start of Russia’s invasion of Ukraine

The US economy shrank at a slightly faster rate than previously estimated during the first quarter, the Bureau of Economic Analysis said Wednesday.With one quarter of negative economic growth in the books, the data adds to fears that a recession may be looming. Real gross domestic product declined at an annualized rate of 1.6% from January to March, according to the BEA’s third and final revisions for the quarter.

Previously, the advance estimate released in April showed a contraction of 1.4%. Last month, that was revised to a decrease of 1.5%.

The first quarter GDP performance, which the BEA noted includes some unquantified effects from the pandemic and the Omicron variant surge, stood in contrast to the fourth quarter of 2021, when the economy grew at a rate of 6.9% from the prior quarter.

The first quarter of 2022, however, marked the start of Russia’s invasion of Ukraine, which sent economic shockwaves throughout the global supply chain, as well as the food, finance and energy markets.Domestically, US inflation has soared to levels not seen in decades amid ongoing supply chain challenges, rising costs for commodities and labor and spiking oil prices.

Oil prices could slump to $75 a barrel in a recession

For now analysts don’t see a recession and still expect Brent crude to average $102 per barrel in 2022

Oil prices could surge higher or plunge lower depending on what happens next in global markets, according to Bank of America. Mounting fears of a recession have sent crude prices to their second consecutive weekly decline, but they remain above $100 per barrel amid still-high demand and constrained supply, while inflation, hawkish central banks and war still loom.

“Surging inflationary pressures from food to energy to services, coupled with fast paced interest rate hikes, suggest oil demand will struggle to fully recover to pre-pandemic levels until next year,” analysts wrote in a recent note. The various crosscurrents and risks left BofA with a wide range of possibilities. For now, analysts don’t see a recession and still expect Brent crude to average $102 per barrel in 2022 and 2023, after averaging about $104 for the year to date.

On Friday, Brent oil rose 2.6% to nearly $113 per barrel, but is down from a high of $133 reached in March. A recession, however, would trigger a pullback in fuel consumption, and oil prices could crash more than 30% from current levels, according to BofA’s estimates. If growth does go south, any easing in monetary policy from central banks would support oil prices somewhat. So even in the event of a recession in 2023, BofA sees crude averaging more than $75 a barrel.

Citi: Oil Is Overvalued By $50 Per Barrel

Morse: Oil should be trading at around $70 per barrel

Brent crude, trading Wednesday at over $116 per barrel, should be closer to $70, according to Citi’s global head of commodity research, Ed Morse, in an interview with Bloomberg.
Morse, which has been one of the most bearish pundits saw demand growth at 3.6 million bpd at the beginning of the year. Citing recession fears and economic slowdown, Citi is now estimating that demand growth for oil stands at 2.2 million bpd year-on-year, down 1.4 million bpd from the beginning of 2022.

Oil prices have surged some 50% since the beginning of the year, with Russia’s invasion of Ukraine and resulting Western sanctions roiling global energy markets. On Tuesday, a Reuters poll of analysts showed a consensus for Brent prices to average just over $107 per barrel in Q2, with some experts eyeing $130 per barrel in the aftermath of the EU’s partial ban on Russian imports.

But it’s all overblown, says Citi’s Ed Morse. “I’d say it’s more in the $70 range than it is in the $120 range,” Morse told Bloomberg. “If you look at the fair value for oil, look at the flowing curve. It’s exaggerated.”

Oil Market Fears Recession

Bullish and bearish catalysts collided

The oil market wrapped up another volatile week of hectic trading, swinging up and down in a $5 a barrel range as it was pulled between bullish and bearish catalysts in both directions every day.   Both benchmarks hit an eight-week high early on Tuesday, only to pull back later in the day and join on Wednesday the sell-off on Wall Street triggered by renewed investor concerns about a possible recession as top retailers flagged soaring costs and supply chain bottlenecks in their quarterly earnings reports.

In the week to May 20, oil market participants paid more attention to “recession fear” headlines than to the weekly U.S. petroleum status report, which showed another draw in gasoline inventories and higher implied domestic demand, which—despite record-high gasoline prices in America—is only set to rise further as we enter the summer driving season.

“The market is reacting to all sorts of different headlines hour to hour, and the movement in oil markets on a day-by-day basis getting even more exaggerated,” Andrew Lipow, president of Lipow Oil Associates in Houston, told Reuters on Thursday, when oil settled higher after the U.S. dollar weakened, following a plunge in crude prices in earlier trading on the same day.

Saudi oil giant Aramco’s first-quarter profits surge 80%

Saudi Aramco overtook Apple as the world’s most valuable company

Oil giant Saudi Aramco said Sunday its profits soared more than 80% in the first three months of the year, as the state-backed company cashes in on the volatility in global energy markets and surging oil prices following Russia’s invasion of Ukraine.

The bumper first-quarter earnings by the firm formally known as the Saudi Arabian Oil Co., which overtook Apple as the world’s most valuable company last week, show a record net income of $39.5 billion, up from $21.7 billion during the same period last year. The figure marks the oil group’s highest quarterly profit since 2019, when the Saudi government, which owns 98% of the company, listed a sliver of its worth on Riyadh’s Tadawul stock exchange in what was then the world’s largest-ever initial public offering.

In a statement, Aramco’s chief executive attributed the spike in profits to rising prices as well as the kingdom’s increase in production, along with allies in the group known as OPEC Plus. He also appeared to suggest that the disruption from the war in Ukraine had underscored the vital role of oil and gas companies like Aramco.

Equities bounce back

Yields, oil prices drop

Wall Street closed higher on Tuesday as investors waited for inflation data and worried about the prospects of slowing economic growth and the impact of policy tightening.


U.S. Treasuries rallied, with the yield on the benchmark 10-year note tumbling from a more than three-year high to below 3% as investors reassessed the inflation outlook before U.S. consumer price index (CPI) data is released Wednesday.

U.S. crude oil futures dipped below $100 a barrel to their lowest level in two weeks as the demand outlook was clouded by coronavirus lockdowns in China and growing recession concerns, while a strong dollar made crude more expensive for buyers using other currencies.

Markets have been volatile across asset classes due to a combination of surging inflation and fears that monetary tightening aimed at slowing price increases would cause a slowdown in global economic growth.

Brent Falls Below $100

Erasing Ukraine War Gains

Oil prices dipped by more than 4% early on Monday, with Brent falling below $100 a barrel, as COVID-related lockdowns in China weighed on demand expectations, while the coordinated massive release from oil reserves eased fears of supply shortages.  As of 8:05 a.m. ET on Monday, WTI Crude was down by 4.80% at $93.59, and Brent Crude was trading down by 4.50% at $98.18.

Oil prices have now erased most of their gains since the start of the Russian invasion of Ukraine, after a month and a half of extremely volatile trading in which market participants have trimmed their positions in the crude oil futures. Oil hasn’t been this low since the middle of March. Early on Monday, the continued lockdowns in China—which is fighting its worst outbreak in two years with its zero-COVID policy—were still a source of concern for the oil market, which is apprehensive of the outlook on demand in the world’s biggest crude oil importer.

China’s financial hub Shanghai reported a record more than 25,000 new infections during the weekend. One of China’s wealthiest cities, with 26 million residents, has been under lockdown for more than a week under the Chinese “zero-COVID” policy, which could weigh on fuel demand. Authorities started easing some restrictions on Monday, as residents became increasingly frustrated with the policy.

Why oil has suddenly dipped back down below $100

Less active market

West Texas Intermediate oil futures dropped below $100 a barrel on Tuesday, having shed more than 20% in a tumultuous week of trading that’s seen wild price fluctuations.

The latest developments to rattle the market are a resurgence of Covid-19 cases in China, the world’s biggest crude importer, and what appears to be progress in cease-fire talks between Ukraine and Russia. While there are still concerns that the disruption to Russian oil flows is squeezing an already tight market, OPEC and others have been quick to point out there is no shortage.

The market is also in the midst of a liquidity crunch, leaving prices vulnerable to big swings. Clearing houses have been increasing margins — effectively making it more expensive to trade the same amount of oil — and open interest has collapsed to the lowest since 2015. The gap between bids and offers for WTI was six cents at times on Tuesday — it would usually only be about half that amount — another sign of a less active market.

China’s latest virus outbreak, with growing clusters spawned by the highly infectious omicron variant in some of its most-developed cities and economic zones, is an unprecedented challenge for the country’s Covid Zero strategy. The nation injected more funds into the financial system and set a weaker-than-expected reference rate for the yuan, seeking to support the economy.