Posted on 08/05/2022 6:24:52 AM PDT by BeauBo
Oil prices have fallen to their lowest levels since Russia's invasion of Ukraine on February 24.
Recession fears are putting a damper on demand for oil, sending futures down 10% this week alone.
Gas prices in the US have been falling for 49 straight days.
Benchmark US West Texas Intermediate settled 2.1% lower at $88.54 a barrel on Thursday — down about 10% this week so far. They were trading at $88.98 a barrel at 12:10 a.m. EDT on Friday.
Benchmark international Brent crude oil futures settled 2.75% lower at $94.12 a barrel on Thursday — down 14% this week to date. They were trading at $94.42 a barrel at 12:09 a.m. EDT on Friday.
Both grades surged to well over $120 a barrel earlier this year after Russia invaded Ukraine...
Energy prices were rising rapidly even before the Ukraine war due to a resurgence in demand as the pandemic ebbed. Price gains extended on fears of a supply disruption after the war started, as Russia is a major oil exporter.
As energy inflation climbed, the Federal Reserve started hiking rates, which makes borrowing for anything from mortgages to credit cards more expensive and encourages people to save, rather than spend — which in theory, helps bring down prices.
But it takes a while for the effects to be felt and the risk is that the central bank raises rates to the point where the economy slows down and even tilts into recession, as demand contracts.
(Excerpt) Read more at markets.businessinsider.com ...
The peak in total revenue was probably toward the end of May - now it is classified as a State secret in Russia, after decades of open reporting, like other countries.
Gas export volumes have dropped dramatically (the Nordstream pipeline is only at about 20%), and what is still sold is at the contract price, not the currently high spot price.
Oil prices seem headed back to where they were a year ago (around $60 per barrel) by the end of the year. Around that point, Russia's net oil revenue should about zero out.
Russia is a high cost producer (the highest inherent costs of any major producer) - somewhere in the fifties per barrel to produce. Now with sanctions, Russia has additional expenses, must now offer a smuggler's discount, as well as suffering declining efficiency to produce and market.
As recession brings the price down, Russian profit margins are the first to go into the red, as producers compete for remaining market share.
They have only limited long term contracts above their production costs, now that their long term European customers are dropping them en masse (90% by year's end).
Out of about $600 billion in foreign reserves before the invasion on 24 February, about $300 billion are frozen in the West by sanctions, and another $200 billion have already been burned through on the war and the ballooning Government budget deficit. The remaining roughly $100 billion will likely last only 2-3 months (or less, as oil and gas revenues shrink).
Just like in the old Soviet Union, they will likely continue oil operations at a loss as long as they can, to not look bad politically, and so that corrupt officials can continue to skim their percentage - but the Government's finances will be bled to do that.
Russia is speeding toward financial crisis as oil prices drop, and the gas is shut off to Europe. Their likely only choice will be to print rubles at Zimbabwe speed, and suffer domestic hyperinflation next year, driving the Russian middle class into poverty.
Putin did that.
Well, there were people here not long ago predicting $200 a barrel.
At the current rate of monetary inflation, $200 oil will soon be yesterday’s $100 oil.
Gas station Russia facing a price squeeze, as Central Banks slam the brakes on demand.
The punch bowl is being snatched away, the party is coming to an abrupt end, and the Russian financial hangover is likely to be historic.
Brilliant, simply brilliant. The regime so completely tanks the worldwide economy that we get a worldwide depression. While running on $2 gas, it’s close enough for the Dems to steal both houses again in ‘22. The American voter is known for being so easily hoodwinked.
“there were people here not long ago predicting $200 a barrel.”
Just looking at the supply side, suddenly pulling Russia’s 7% of global exports off the market (all other things being equal) could have done that.
But recessions can inflict even greater reductions in demand - 10% or more.
Boom and bust is characteristic of oil prices, and Russia is in a very bad position now, to endure a price bust.
I would not bet on $60 a barrel. People are dumb and will pick up their usage of gasoline - already seeing it in my area in the last couple weeks with higher traffic than 7-8 weeks ago. I think we bounce around between $75 and $105.
I guess the war in Ukraine is over?
“I would not bet on $60 a barrel.”
There are a lot of variables, that make prediction risky. The weather, for example.
But prices have been quite high as compared to historical norms. $60 would be a return to a more normal level, rather than an actual price bust (like to $20 or $30 would be).
Supply and demand. We are heading into a global recession or worse. Demand is decreasing as economies collapse. We had the same thing during Covid-19.
https://www.newsweek.com/why-us-cant-count-europe-fighting-russia-opinion-1730153
Europe is hurtling towards its greatest economic crisis since the 1930s. During the COVID-19 pandemic, European governments increased demand with massive monetary stimulus packages while at the same time reducing supply by closing businesses and urging workers to stay home. This unleashed some of the highest inflation rates seen in a generation.
Governments are in trouble, with Italy’s prime minister already losing his job. In the Netherlands, Germany, Poland, and Spain, there have been multi-week protests by farmers and truckers. A wave of strikes has plagued the crucial airline sector. As these conditions are unfolding in Europe, millions of refugees fleeing similar problems in Africa and the Middle East are likely to start arriving on Europe’s borders. With food, fuel, and migration problems mounting, all of Europe’s governments will face increased unrest. Many more are likely to fall in the next six to eight months.
Fueled by cheap Russian energy, Germany has been the engine of European economic growth. Not any longer. The Germans have very little oil or gas of their own. They have long relied on Russia for roughly a third of their energy imports, but last month Gazprom’s exports of natural gas to Europe fell to their lowest level in decades. The essential NordStream 1 pipeline is operating at 20 percent of capacity and Putin has threatened to reduce flows even further. Meanwhile, Gazprom has declared force majeure on some European customers and some of Germany’s largest energy companies will require massive government bailouts to avoid bankruptcy.
Soaring energy costs have made German exports much less competitive while growth in their largest market, China, is falling. German drivers are paying nearly $10 a gallon for gasoline. Germany’s Federal Network Regulatory Agency has warned consumers that household energy costs may triple next year. Even German steelmakers, who still need coal and get much of it from Russia, are feeling the pain of sanctions. The net result is German inflation that now exceeds anything seen since 1960, combined with German GDP which is falling, and expected to fall further.
Europe’s political leaders clearly sense what is coming. Hungarian President Victor Orban, who won re-election easily in April, now feels threatened by economic unrest. He recently condemned the EU’s Russia sanctions policies saying, “I thought we had only shot ourselves in the foot, but now it is clear that the European economy has shot itself in the lungs, and it is gasping for air.” Remarkably, Frans Timmermans, the vice president of the European Commission, agrees with Orban. He has warned that due to energy shortages, Europe will see, “Very, very strong conflict and strife” this winter.
“I guess the war in Ukraine is over?”
The financial, economic and military costs to Russia are getting really severe - once in a generation, already.
The Ukraine is likely in even (much) worse shape economically and financially - but they have the West willing to help with essentials, and to extend credit to tide them over.
There will be growing economic and financial pressure on Russia to find a way out of this tar baby.
Natural gas is the big issue for the European economy. German electricity costs will go up 1,000% since last year. Falling oil prices reflect decreased demand, which means less economic activity. Is inflation under control?
Putin’s Price Cut™
Local gasoline is about $3.65...Hoooray!
If you look at futures prices for oil and gas to Europe, you can see that the market insiders view the shortage/premium price situation in Europe as likely to run through the middle of 2024, before prices return to normal, with new, non-Russian suppliers.
The biggest hump is getting through this coming Winter.
Putin and his Rooskie "Moscow elite" bunglers end up with egg on their faces. Very quiet now in Ukraine, since the Ukie guerillas blew up these idiot's ammo dumps.
My guess is that the rising dollar (not increased oil production) is reducing American oil prices.
Gas is still over $5.00/gallon in California - cheapest I saw yesterday was $5.29/gallon.
Still far higher than when Trump was in office - by at least $1.00-$1.50/gallon.
I topped off my “farm” fuel tank with regular gas a few weeks ago when gas was around $4.40 here. It’s now at $3.55. It was 196 gallons. I’m not complaining, though. The price difference is not that much in the general scheme of things, and the important thing is that I HAVE the fuel. I only use it for my ZT mower and lawn tools, so it will keep me in gas for a long time, even if supplies get scarce.
At the time I thought the tank was pretty much empty (it holds 250 gallons). My concern was not price, but availability.
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