The Energy Report: Admitting the Problem

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Admitting that you have a problem can be the first step to solving it. Yesterday got a boost when Biden officials reportedly admitted we could see a major oil price spike in December unless more action is taken. The Biden administration fears the EU ban on Russian oil supplies could cause a major spike in oil prices, so it is considering other options like further releasing the strategic petroleum reserve. Yet this is in direct opposition to a publication from the Treasury Department when they tried to suggest they had the answer to December’s impending price spike. These are called price caps. They laughed at people who wondered if the price cap would work and tried to convince us all that this policy is the answer to the oil shortage problem. Yet they say one thing and worry about another.

The Treasury Department boasted: “Last week’s bold announcement by the G7 of a price cap on Russian oil purchases was met with skepticism and ridicule from media commentators and pundits. After months of planning, the oil price cap is an attempt to limit Kremlin revenue on exports of its most important product and cut financial support for its war on Ukraine. After the G7 announcement, the Kremlin immediately declared that Russia would not sell oil to countries respecting the price cap. Critics argue that the system will never work, but they are wrong.

If we are wrong, why is the Biden administration bracing for an oil price spike in December? If we are wrong, then why is the Biden administration talking about draining our already depleted supply of SPR oil? The Z-Man Energy Brain points out that SPR oil supplies will soon fall below trading stocks very soon, raising real concerns if we get a major oil disruption. If we go one step further, why doesn’t the Biden administration, if they think price caps work, end our inflation problem by capping the price of everything? That would then theoretically end Biden’s inflation problem. Of course, Biden had a hard time admitting he has a problem. He also finds it difficult to admit that his policies have anything to do with inflation. They will not admit that they know price caps disrupt market forces and lead to shortages.

Reuters reports that “the price cap that the G7 countries want to impose on Russian oil to punish Moscow should be set at a fair market value less any risk premium resulting from its invasion of Ukraine,” an official told reporters on Friday. US Treasury Department official. The price must be set above the marginal production cost of Russian oil and take historical prices into consideration, said Elizabeth Rosenberg, U.S. Treasury Assistant Secretary for Terrorist Financing and Financial Crimes. She also said that “the ceiling price should be…consistent or consistent with historical prices accepted by the Russian market. “This could imply a potential cap of around $60 a barrel, experts say, as Russian Urals crude, based on the benchmark, sold for between $50 and $70 a barrel in 2019. Documents from the Russian government have identified a marginal production cost of $44 per barrel, although some Western officials believe it could be a little lower according to Reuters.

Still, Biden’s Treasury Department asks the obvious question, “Won’t a price cap be undermined by countries that don’t participate in sanctions?” They respond: “Critics say that India, China, Turkey and many other countries will never agree to a price cap and that an oil price cap that is not global will never work. While it’s true that many countries probably won’t officially sign on to the cap, they don’t need it for the plan to work. That’s because critics ignore the fact that non-participating countries’ goal is to get the lowest price to buy oil, and the price cap will give them extra leverage in their negotiations with Russia. Already, India, China and other developing countries are buying Russian oil at an unprecedented price of up to $30 a barrel. Russia is so desperate to find buyers for its oil that it is offering long-term fixed-price contracts at a massive discount to try to secure at least some future revenue.

So they count on Russian desperation. It looks like Biden’s Treasury Department is daring Russia to cut off the oil supply almost as if they were daring them to invade Ukraine and hitting them with stiff penalties that were supposed to deter an invasion until that she would not, then said the sanctions were never intended to deter an invasion. They ask, “Won’t Putin just stop selling oil, like he threatened to do?” They answer their question by saying, “It’s important to call Putin’s bluff. Although the Kremlin has said that Russia will refuse to supply any country participating in the price cap, energy exports account for more than half of the Russian government’s total budget in most years. With Russia’s revenues already on the verge of a significant drop, Putin cannot truly afford to turn off his country’s oil taps as its economy reels from the ever-increasing costs of war.

So while the Treasury Department dares Vladimir Putin to cut supplies and call his bluff, the Biden administration fears a possible price spike. This disjointed economic policy has been an indicator of this administration. It is also going to be very dangerous and leave the world vulnerable to a major price spike in the winter. At the same time, the world is threatened by poor energy policy and the lack of fossil fuels, this administration continues to double down on its green energy program discouraging fossil fuel production on federal lands by imposing stricter regulations on producers leaving the economy and the poor more vulnerable this winter.

As far as Russia is concerned, they say the price cap will be the loss of the West. Reuters reported that “Russia warned the West on Friday that plans to cap the price of Russian oil and gas exports in retaliation for the war in Ukraine would fail and ultimately lead to instability in the United States and Europe. The confrontation over Ukraine has prompted European Union customers to cut their purchases of Russian energy as the G7 and EU try to impose a price cap on Russian oil and gas.

Just before the EU announced a Russian gas price cap on Wednesday, Putin threatened to cut off supplies if such limits were imposed, warning the West that he would freeze like the wolf’s tail in a fairy tale. fairies. The Group of Seven major industrialized nations want to impose an oil price cap that would deny insurance, financing and brokerage to oil cargoes priced above a price cap yet to be set on crude oil and two petroleum products.

Oil prices also rise as the dollar begins to decline. Federal Reserve Chairman Jerome Powell appears to be allaying fears that the Fed is going crazy raising interest rates and had no intention of raising interest rates beyond the increase in 75 basis points.

Oil charts also appear to be giving a bottom signal closing above the most important support line yesterday after failing to follow a fresh low they hit early in the morning. Extreme volatility remains, but the tight supply situation should outweigh economic fears, especially as winter approaches.

Natural gas prices also reversed. Natural gas sold off a little on fears that LNG exports could be thwarted by the EPA’s crackdown on natural gas exporters. Reuters reported that “Biden administration denies Cheniere’s request to circumvent LNG pollution rule.” The U.S. Environmental Protection Agency (EPA) said on Tuesday it had rejected a request from major liquefied natural gas (LNG) exporter Cheniere Energy (NYSE:) LNG.A will exempt turbines at its two U.S. shore terminals of the Gulf of a dangerous pollution rule. The release raises questions about whether the Texas-based company will have to cut supercooled fuel exports to install new pollution control equipment at its facilities at a time when Europe depends on increased LNG shipments from the United States to compensate for reductions from Russia. . Cheniere spokesman Eben Burnham-Snyder said that while the company “strongly disagrees” with the EPA’s decision, “we will work with our state and federal regulators to develop solutions that ensure conformity”.

Natural gas still looks supported even though the weather outlook is going to be bearish and shoulder season injections will increase in the coming weeks, but the question is whether or not that will be enough to appease market prices in an environment where the world faces shortages.

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