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.

Russia finally falls into recession

Western sanctions lead to a 4% fall in GDP nine months after Putin invaded Ukraine 

Russia has entered a recession, nine months after launching its offensive in Ukraine as Western sanctions weigh on the economy, according to official data. Gross domestic product shrank four percent in the third quarter, according to a preliminary estimate by the national statistics agency Rosstat on Wednesday. As that follows one of the same size in the second quarter, Russia now meets the technical definition of a recession with two consecutive quarters of falling GDP.

Western sanctions have limited exports and imports, including of key manufacturing components and spare parts. Companies have also been suffering from a lack of staff as a Vladimir Putin’s partial mobilisation has taken several hundred thousand men out of the workforce. However, the four percent drop in economic output between July and September was less than the 4.5 percent contraction many analysts had expected. The contraction was driven by a 22.6 percent plunge in wholesale trade and a 9.1 percent drop in retail trade. Meanwhile, construction grew by 6.7 percent and agriculture 6.2 percent.

Inflation Dips Below 8% Annual Rate in October

The drop will not deter the Federal Reserve from its campaign of higher interest rates

Inflation rose at a 7.7% annual rate in October, better than expected but still well above the Federal Reserve’s desired level, the Bureau of Labor Statistics reported on Thursday.

Economists had forecast an annual rate of 7.9%. The monthly increase was 0.4%, the same as in September. The core consumer price index, leaving out often volatile food and energy prices, came in at 6.3% annually, compared to 6.6% in October, and 0.3% following last month’s 0.6% rise. Overall, inflation has trended down since it hit 9.1% in June, when energy prices were spiking in the wake of Russia’s February invasion of Ukraine and disruptions in global supply chains.

June’s number sparked a more aggressive move from the Fed to tame inflation, with four consecutive increases of 75 basis points in the federal funds rate, a trigger for many other interest rates that have driven borrowing costs to their highest levels in years. The average rate on a 30-year fixed rate mortgage, for example, is now above 7% compared to the 3% range a year ago.

NATO will send ‘hundreds’ of signal-jammers to Ukraine to counter Russia’s onslaught of explosive Iranian-made suicide drones

The military alliance’s chief said the systems will be delivered within the coming days

NATO is sending Ukraine signal-jammers so it can counter deadly Iranian-made suicide drones that Russian forces have used to terrorize cities far from the front lines. Speaking at the Berlin Foreign Policy Forum on Tuesday, NATO Secretary General Jens Stoltenberg said the military alliance will deliver “hundreds” of counter-drone jammers to Ukraine in the “coming days.”

These systems will help Ukraine address the “specific threat of drones, including, of course, Iranian-made drones that are now causing a lot of havoc or suffering in Ukraine,” Stoltenberg said during the virtual interview.
Stoltenberg initially remarked on the future delivery of drone jammers at a press conference in Brussels last week, where he said the systems can “help render ineffective Russian and Iranian-made drones … and to protect Ukrainian people and critical infrastructure.”

Elon Musk says Starlink will keep funding Ukraine’s government ‘for free’

Starlink is losing about $20 million a month in Ukraine

SpaceX CEO Elon Musk reversed his decision to stop funding the Starlink terminals sent to Ukraine, saying on Twitter that the company will continue to provide “free” satellite internet service to the government even if it means the company loses money.

“The hell with it,” Musk writes on Twitter. “Even though Starlink is still losing money & other companies are getting billions of taxpayer $, we’ll just keep funding Ukraine govt for free.”

On Friday, a report from CNN revealed that SpaceX asked the government if it can pay for any additional terminals sent to Ukraine, as well as for existing internet services. These expenses could reportedly amount to about $124 million by the end of 2022 and nearly $380 million over the next 12 months. Musk later added on Twitter that Starlink can’t fund services in Ukraine “indefinitely,” noting in another tweet that Starlink’s losing about $20 million a month to maintain its services.

Musk says Starlink has sent about 25,000 terminals to help Ukraine’s war efforts. The service has played an important role in keeping the Ukrainian military and civilians online during the war, as the country continues to suffer blackouts from Russia’s missile strikes, and the risk of cyberattacks remains high.

JPMorgan CEO: ‘U.S. should pump more oil’

Objective: to avert war-level energy crisis

JPMorgan Chase CEO Jamie Dimon said Monday that the U.S. should forge ahead in pumping more oil and gas to help alleviate the global energy crisis, likening the situation to a national security risk of war-level proportions.

Speaking to CNBC, Dimon dubbed the crisis “pretty predictable” — occurring as it has from Europe’s historic overdependence on Russian energy — and urged Western allies to support the U.S. in taking a lead role in international energy security.

 “In my view, America should have been pumping more oil and gas and it should have been supported,” Dimon told at the JPM Techstars conference in London. “America needs to play a real leadership role. America is the swing producer, not Saudi Arabia. We should have gotten that right starting in March,” he continued, referring to the onset of the energy crisis following Russia’s invasion of Ukraine on Feb. 24.

Russians are paying up to $27,000 to escape the country

How to avoid mobilisation

Demand for seats on private jets has boomed in Moscow after Vladimir Putin ordered the first mobilisation since the second World War and wealthy Russians look for a way out of the country amid reports that authorities plan to close the borders to men of mobilisation age.

Passengers are said to be predominantly heading to Armenia, Turkey and Azerbaijan, which allow Russians visa-free entry. They are paying between €22,000 and €27,000 for a seat on a private plane, while the price to rent an eight-seater jet ranges from €89,000 to €156,000 which is many times more expensive than the normal fare.

Russia’s income from energy hit a 14-month low in August

Moscow dumps discounted oil

Russia’s energy revenues shrank in August to the lowest in more than a year as Western sanctions over Ukraine prompted the Kremlin to sell discounted oil and squeeze gas flows to Europe.

The refusal to buy Russian oil by some traditional customers in Europe means Moscow has been forced to sell oil at a steep discount in Asian markets, depriving it of the full benefit of higher prices. While August saw record-high spot gas prices in Europe, gas levies, which take up a smaller share in the budget, couldn’t fully offset lower oil revenues. State-run Gazprom PJSC has significantly cut gas exports to Europe this summer, blaming sanctions for capped flows.

Russia’s oil and gas revenues, which account for more than a third of nation’s budget, fell to 671.9 billion rubles ($11.1 billion) last month, the lowest since June 2021, according to Finance Ministry’s data published Monday. That’s a drop of almost 13% from July. It’s also a 3.4% decline from a year ago, even though Urals crude prices rose almost 10%.

Another blow to the Kremlin’s coffers could come from the price cap that Group of Seven nations plan to set for Russian crude and oil products. While President Vladimir Putin pledged to halt exports to countries that introduce such a measure, the price cap could further increase the discount for remaining buyers of Russian fuel.

Germany’s gas storage facilities are slightly over 77% full

Two weeks ahead of schedule

Germany’s natural gas storage facilities surpassed a fill level of more than 77% this month, two weeks ahead of schedule, as Europe’s largest economy scrambles to prepare for the coming winter.

Chancellor Olaf Scholz’s government initially planned for gas storage levels to reach 75% by Sept. 1. The next federally mandated targets are 85% by Oct. 1 and 95% by Nov. 1. European governments are racing to fill underground storage facilities with natural gas supplies in order to have enough fuel to keep homes warm during the coming months.

Russia has drastically reduced natural gas supplies to Europe in recent weeks, with flows via the Nord Stream 1 pipeline to Germany currently operating at just 20% of agreed upon volume. Moscow blames faulty and delayed equipment. Germany, however, considers the supply cut to be a political maneuver designed to sow European uncertainty and boost energy prices amid the Kremlin’s onslaught against Ukraine.


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.

Saudi Aramco unveils record $48.4 billion profit in Q2

Aramco President: ‘We expect oil demand to continue to grow for the rest of the decade’

Oil giant Saudi Aramco on Sunday unveiled record profits of $48.4 billion in the second quarter of 2022, after Russia’s war in Ukraine and a post-pandemic surge in demand sent crude prices soaring. Net income leapt 90 percent year-on-year for the world’s biggest oil producer, which clocked its second straight quarterly record after announcing $39.5 billion for Q1.

“While global market volatility and economic uncertainty remain, events during the first half of this year support our view that ongoing investment in our industry is essential — both to help ensure markets remain well supplied and to facilitate an orderly energy transition,” said Aramco president and CEO Amin H. Nasser. “In fact, we expect oil demand to continue to grow for the rest of the decade, despite downward economic pressures on short-term global forecasts.”

Net income rose 22.7 percent from Q1 in “strong market conditions”, Aramco said. Half-year profits were $87.91 billion, up from $47.18 billion for the same period of 2021. Aramco paid an $18.8 billion dividend in Q2 and will disburse the same amount in Q3.

WTI Oil Dips Below $90

First Time Since Ukraine War Began

The U.S. crude oil benchmark dipped early on Thursday to the lowest level in months, falling below $90 a barrel for the first time since Russia invaded Ukraine at the end of February.

As of 10:30 a.m. ET on Thursday, the U.S. benchmark WTI Crude had fallen by 1.16% on the day and traded at $89.58. The international benchmark, Brent Crude, was also down and trading below $100 per barrel for a second consecutive day, amid a global economic slowdown and fears of recession, which could dent demand growth this year compared to last year. Brent had dropped by 1.44% to $95.36 at 10:30 a.m.

Moreover, the tightness in physical crude markets seems to have eased in recent days, with spot deliveries being traded at smaller premiums. Oil prices settled 4% lower on Wednesday, to levels seen just before the Russian invasion of Ukraine, after the U.S. Energy Information Administration reported a large build in crude oil inventories of 4.5 million barrels for the week to July 29.

Global Coal Demand On Track To Match Record

India is a key driver of coal demand growth

Soaring natural gas prices are giving rise to coal demand around the world, with consumption set to match this year the record-high from 2013, and further jump to a new all-time high next year, the International Energy Agency (IEA) said on Thursday.

The surge in natural gas prices following the Russian invasion of Ukraine has accelerated a gas-to-coal switch and has made coal more competitive in many markets, driving a rise in coal demand and coal prices globally, the agency said.

This year, global coal demand is expected to rise by 0.7% to 8 billion tons if China’s economy recovers as expected in the second half of 2022, according to the IEA’s July 2022 Coal Market Update. This is despite an economic slowdown and still uncertain recovery in China after the COVID-related lockdowns in the second quarter of 2022. If the IEA’s forecast pans out, global coal demand this year will equal the demand from 2013, when coal consumption hit a record high.

Next year, coal demand is expected to rise further, albeit slightly by 0.3%, and hit a new record high, according to the IEA. Uncertainties about this projection have increased over the past few months, the agency noted.

India is a key driver of coal demand growth this year, while China—which alone accounts for more than half the world’s demand—is expected to see growing demand in the second half of 2022. This will likely bring Chinese coal consumption for the full year 2022 to the same levels as last year. China and India together consume double the amount of coal as the rest of the world combined, the IEA says.

The U.S. Becomes World’s Top LNG Exporter

Shipping record volumes of LNG to Europe to help EU allies in their efforts to fill gas storage ahead of the winter

High demand in Europe, high natural gas prices, and increased export capacity made the United States the world’s largest exporter of liquefied natural gas (LNG) in the first half of 2022, the U.S. Energy Information Administration said on Monday.

U.S. LNG exports rose by 12% in the first half of 2022 compared with the second half of 2021, and averaged 11.2 billion cubic feet per day (Bcf/d) between January and June 2022, the EIA said, citing data from CEDIGAZ.

Thus, the United States beat Australia and Qatar, the other two major LNG exporters.

Spot LNG prices in Europe and Asia have held much higher than historical norms since the last quarter of 2021, and reached record highs earlier this year after the Russian invasion of Ukraine. Europe is importing growing volumes of American LNG as it looks to replace as much Russian pipeline supply as possible. Moreover, U.S. LNG export capacity has expanded by 1.9 Bcf/d nominal (2.1 Bcf/d peak) since November 2021, according to EIA’s estimates.

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.