If you can’t trust Russian President Vladimir Putin, then who can you trust?
European natural gas prices fell after Putin assured Europe that he would provide all the gas that he was contractually obligated to sell to Europe. Of course, Putin also said that when he was on the Ukrainian border that those were only war games and he had no intentions of invading Ukraine. What happened after that I’m sure was just a big misunderstanding. Putin tried to assure Europe that the cut-off of natural gas supply was not a warning but just some simple maintenance. Reports that gas flow through Nord Stream 1 pipeline started but at a very low rate.
The Wall Street Journal reported that Putin said Russia would fulfill its commitments to supply natural gas to Europe, but warned that flows via the Nord Stream pipeline could be curbed soon if sanctions prevent additional maintenance on its components. In comments late Tuesday after he visited Tehran, Putin said Kremlin-controlled energy exporter Gazprom PJSC (OTC:OGZPY), the pipeline operator’s majority shareholder, “has always fulfilled and will fulfill all of its obligations.” But the Russian president added that flows might fall to some 20% of capacity as soon as next week if a pipeline turbine that was undergoing repairs in Canada isn’t returned to Russia soon. Putin said another turbine had to go for maintenance on July 26.
Even before the maintenance began, Gazprom (MCX:GAZP) last month cut deliveries on the pipeline to 40% of its capacity, blaming Canadian sanctions that had prevented the return of the turbine being repaired there. European officials have dismissed the turbine explanation as a pretext for Moscow to try and wreak economic havoc on the continent.
At the same time, word is circulating that U.S. President Joe Biden will take steps to save the planet from climate change, which will only make oil and gas in the U.S. get more expensive. The White House was falling all over itself to take credit for the recent plunge in the oil and gas price. Now, will they have the integrity to own the price when it starts to go back up?
Initial reports that the Biden was considering declaring a climate emergency that would give him wide-ranging powers in restricting U.S. oil and gas production seem to give to the fact that that was probably an overreach of his political powers. So instead he will fall back on his favorite fossil fuel killing tool “the presidential executive order” to mandate whatever the president decides to do. There is also some talk that he may ban U.S. crude oil exports, which will be bad news for his friends in China.
I can assure you that whatever he’ll do, it will not be bearish for the price of oil or natural gas or any fossil fuels for that matter. I would also assume it will make your electricity prices go up. So your electric bills are going to go through the roof especially if you bought one of those electric vehicles. I hope those Chinese-made sun panels are working.
Data from the American Petroleum Institute (API) seems to suggest that gasoline demand in the United States is still subdued after the 4th of July holiday weekend. The API reported that crude oil supplies increase by 1.860 million barrels. That increase in supplies came after the Strategic Petroleum Reserve released 5.4 million barrels from inventory last week. Supplies in Cushing, OK, increased by 523,000 barrels.
Gasoline inventories, according to the API, increased by 1.290 million barrels. The increase comes at a time of year when supplies of gasoline normally fall. The numbers indicate that U.S. drivers have cut back after the historic price run-up that we saw leading up to the 4th of July holiday. We should see gasoline demand improve because prices have come down so that should happen in the coming weeks.
Crude oil prices still looks like it put in a solid bottom, but we may pull back for technical reasons and concerns about today’s Energy Information Administration inventory report. The market is taking comfort in the fact that Vladimir Putin is talking nice to Europe and it just goes to show how naive some people can be. Europe is taking steps to reduce its reliance on natural gas this winter and is making plans to reduce consumption.
Germany’s economic minister reminded Russia that they are contractually obligated to send gas supplies to Europe. It is also being reported that Russian gas exports to China hit a record high.
U.S. natural gas futures are back in breakout mode as the heat wave in the U.S. and global upward price pressures from Europe continue to gain support. EBW Analytics writes that the natural gas surged as much as $2.00/MMBtu in two weeks as blistering heat rolled forward and descended on the Lower 48. Wednesday may be the third-hottest day in US history—and next week could be even hotter. Exceptional heat increases the risk of an EIA storage surprise, while the rapidly approaching August contract expiration also leans bullish.
While a weather-driven rally can turn sharp at any point, $8.00 NYMEX gas appears possible. Still, production set a fresh year-to-date high Monday, while extreme heat is needed to sustain the upside. If forecasts weaken, prices could reverse lower. ERCOT may set its 11th all-time peak load record already this summer on Wednesday—and national power burns may add another 1.5 Bcf/d next week.
The dip last week was a great week to buy options strategies and we continue to suggest that you can add to those positions on breaks. We believe that the bottom in oil is in brewing barring any major catastrophes on the economic front.