There’s no way to win. The game itself is pointless! There’s no way to win. That is what was said about tic tac toe in the movie “War Games” as well as thermo nuclear war. Russia’s blood thirsty madman Vladimir Putin already put his nuclear forces on high alert and warned that anyone who interfered with his madness will face “consequences you have never seen”.
Russia now has seized control of Europe’s biggest nuclear power plant and some reports say that the plant was being mined with explosive devices. Reuters reported that, “A fire broke out and officials said the fire at the Zaporizhzhia compound was in a training center, not at the plant itself. An official at Energoatom, the state enterprise that runs Ukraine’s four nuclear plants, said there was no further fighting, the fire was out, radiation was normal and Russian forces were in control.”
The International Atomic Energy Agency (IAEA) tweeted #Ukraine informed IAEA that Russian forces took control of site of Zaporizhzhia Nuclear Power Plant; says safety systems of the plant’s six reactors had not been affected and there has been no release of radioactive material. Two people reported injured.
This is not very comforting for the safety of the world and the not very comforting for the Biden administration which can’t even decide if it wants to ban Russian oil. It also continues to shun the U.S. energy industry that offers more solutions to the global energy crisis and instead is looking to make major concession to Iran to get more oil. The administration continues to miscalculate every major event and is making a huge mistake in getting back into a bad Iranian deal.
The Wall Street Journal reports that, “The U.S. and Iran on Thursday were closing in on an agreement to restore the 2015 nuclear deal, although officials from both countries warned final issues still needed to be nailed down in the coming hours. They also say that it is almost certain that under any restored nuclear deal that the Biden administration will lift sanctions on dozens of terrorist-listed people and entities.
What does the Biden administration and China have in common? They both want to continue to buy Russian oil. Reuters reports that Chinese refiners are paying for Russian crude oil using cash transfers to maintain imports from Russia’s far east, as banks shy away from financing the oil because of sanctions, sources with knowledge of the matter said. Global oil prices LCOc1 have soared to their highest in a decade as banks halted financing Russian oil after the United States and other countries ramped up sanctions on Moscow following its invasion of Ukraine. Spot crude premiums and freight rates also spiked, piling on buyers’ costs.
Several European and U.S. refiners have stopped buying Russian oil this week, even though Washington said Russian oil and gas are exempted from sanctions. But Chinese buyers are looking to maintain purchases of ESPO blend crude exported from Russia’s far east Kozmino port using other payment methods as they cannot secure letters of credit from banks, trade sources said. “For those done deals, payments are being sorted out with buyers doing Telegraphic Transfer as bank financing becomes very difficult,” said a Singapore-based Chinese trading executive.
Moody’s rating agency also weighed in on the Russia Ukraine crisis. Moody’s stated the obvious that the conflict between Russia and Ukraine is having a major impact on commodities and making the world vulnerable to commodity price shocks. They say the severity of the fallout on Russian banks following the announcement by the United States and its allies and access to the swift payment system would be restricted. This will be severe, not only on the Russian economy, but to the risk on commodity prices. Moody’s says that the magnitude of the consequences will be determined by the length and the severity of the crisis.
People are asking me why the options for crude oil right now are so expensive. The answer is simple, it is because they are worth it. Many of the option premiums are reflecting the reality that we could see a $10 or $20 or more move to the up or downside very easily. Just in rough numbers, an at the money call or put for crude oil could be anywhere between $,2000 and to $3,000 in the front end of the curve depending on your expiration time but now, of course, it’s more like $7,000 to $8,000. The CBOE crude oil volatility is high at 6437 with good reason. The threat to global supply probably has not been more acute since the Arab oil embargo.
On the downside, the potential of an Iranian oil deal could cause an unwinding of positions bringing the market down quickly. We hope and pray that the Biden administration has second thoughts about this Iranian nuclear deal, but if they don’t, be prepared for a big break. On the other hand, if it appears that the deal is going to fall apart, then the upward trajectory of prices will continue.
I believe that after the initial sell-off after an Iranian nuclear deal, oil will find its footing. Reports of massive supplies of Iranian oil and storage are probably overstated. The ability to increase production may be overstated by Iran as well. Best guess is we’ll see 700,000 barrels a day to 1 million barrels of oil a day back on the market not nearly enough to replace oil from Russia if all supplies get cut off.