Haymaker Daily
On oil at sea
Hello, Subscribers:
Sanctions have always been a tricky move in the world of international conflict (whether martial or strictly economic). The main and commonly acknowledged reason for that, of course, is the hardships a country’s population might or will likely suffer on part of their government. Thus, sanctioning is something of a mixed bag, often drawing tremendous criticism from the peoples belonging to the sanctioning government.
The other tricky aspect is that sanctions can very seriously impede or halt the flow of resources and goods other nations actually depend on or simply want. True, this is generally by design, but the consequences of such moves are inherently difficult to predict or fully prepare for. Sanctioning a country whose chief exports are coffee beans, textiles, or apparel might not be ideal for restaurants and retailers, but the world can adjust. Sanctioning a country whose chief export is energy (and large quantities of it), and, well, the geopolitical formulation changes. Suddenly, realpolitik factors start weighing on the situation as it becomes obvious to all that leverage exists on both sides of the conflict.
A recent piece from OilPrice.com titled Russian Crude Piles Up but Oil Prices Refuse to Move, had this to say on the current state of Western sanctions targeting Russia:
November might go down as one of the most uneventful months in oil pricing as ICE Brent continues to hover between $62 and 66 per barrel, notably narrower than the $9-per-barrel gap in October. The oil market’s main bullish momentum now comes from Rosneft/Lukoil sanctions, however up until now they’ve resulted in a build-up of Russian crude on sea rather than a collapse in day-to-day loadings.
[Emphasis added]
Preceding that passage was the following table, which fully supports the “uneventful” characterization:
The question we’re left with is what happens to these prices when the aforementioned build-up makes landfall? That doesn't strike us as an “if”, while the provided “when” is undeniably a volatile variable. What’s clear is what we’ve always known: Russian energy can be sanctioned but its massive place in the world’s energy matrix means it can never be fully marginalized.
Whether affecting markets because it is being purchased in abundance or looming over future prices because of its growing maritime supply, Russian oil will have its say one way or the other.
Benjamin Graham’s famous saying about markets shifting from voting machines to weighing machines could certainly apply to this scenario. In the case of energy sanctions, he might have said that they are initially about global optics but ultimately about the price of a barrel.
David “The Haymaker” Hay
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