US market players seemingly attach far greater importance to assorted, and particularly Chinese economic data than their European peers if yesterday’s price action is indicative of investor’s thinking. An oil rally in the region of a dollar was followed by a fall that sent the major oil futures contracts in the red by the settlement. The half-hearted Chinese rate cut, the slowing growth in fiscal revenues and the 6% fall in German producer prices, which could imply declining domestic demand all played part in the late sell-off, together with the Iraqi oil minister’s Turkey visit to discuss the resumption of oil exports via Ceyhan. As it has been the case of late, big moves are led by products and yesterday was no exception. The weakness was headline driven and almost instinctive.

Also, in line with recent behaviour, retreats are viewed as temporary, at least for now. Call it recession fears, economic headwinds or demand worries, they have been successfully countered by the OPEC+ group supply management strategy. Whilst the oil balance could obviously deteriorate, currently there is no reason to believe that global oil consumption would approach, let alone fall below supply. The two major events of the week that could provide further clues on the state of the oil market are the central bankers’ meeting in Jackson Hole and the weekly US stock data. Fed chair Jay Powell’s view on peak rates and on the recent sell-off in the bond market will be eagerly awaited. Another drawdown on US commercial oil inventories, on the other hand, would send out an unambiguously encouraging message that stock depletion, in fact, continues tenaciously.

GMT +1	Country	Today’s data	Expectation
14.00	US	Existing Home Sales July	4.15M
14.00	US	Richmond Fed Manufacturing Index August	1.463M

 

No Viable Peace Prospects

The huge amount of uncertainty created by Russia’s invasion of Ukraine shows no sign of abating. In fact, one could go as far as to say that the situation has been deteriorating both from Russia’s and Ukraine’s point of view. The invader was planning for a blitzkrieg when its troops set foot on Ukrainian soil 18 months ago. It is fair to say that such hopes proved a colossal miscalculation. The stubborn resistance of Ukraine, with the active help of western allies took the Kremlin by surprise and Vladimir Putin and his military leaders have been forced to employ unorthodox measures to continue the war – be they offering amnesty to criminals who volunteered to take part in the fighting or bombing civilian targets in Ukraine. The occupied, on the other hand, pinned high hopes on its counteroffensive launched at the beginning of the summer but progress has been slow and disappointing. Analysts predict that Ukraine will struggle to regain occupied territories before the onset of the winter. What was meant to be a fast onslaught has turned into a trench warfare.

As both sides are getting desperate for advances or leverage, the collateral damage can have a serious and profound impact on oil supply. Ever since the breakout of the conflict Russia has brazenly limited Ukraine’s maritime trade with serious repercussions. The halt of agricultural exports hurts not just “unfriendly” nations but predominantly African countries in dire need of staple food. When the offer of the easing of the blockade failed to meet with favourable reply from the West, Russia abruptly withdrew from the grain deal and what followed was the bombing of Ukraine’s ports in its attempt to inflict as much damage on export facilities as feasible.

Under these circumstances the Ukrainian reply was only a question of time, and it came in the form of drone attacks on two Russian vessels in the Black Sea declaring Russian ports there a “war risk area”. The goal is the same as Russia’s – to reduce the invader’s export capability as much as possible. An excellent opinion piece in the Financial Times on the topic warns that the Ukrainian military could resort to a different tactics to hinder Russian, and above all oil, exports. That is, to attack oil terminals in the Novorossiysk region.

Although there is no thawing in the tension, only escalation, and maybe because of it, international attempts to pave the way to peace talks are not dead. The latest annual summit between Vladimir Putin and African leaders in St Petersburg registered an unusually low turnout, which, in itself, is a message to the Russian leader how Africa views the Ukrainian war. Many African countries rely heavily on Russian and Ukrainian grain so those who attended made it abundantly clear where their priorities lie. The Chairman of the African Union Commission declared that, “This war must end. And it can only end on the basis of justice and reason”. The South African President told Putin that Africa has the right to call for peace.

Just a week after Putin’s meeting with the limited number of African leaders, Saudi Arabia hosted peace talks on the Ukrainian war. The number of countries participating in the conference either in person in Jeddah or online totalled 42. Russia was not represented but one of its staunchest allies, China, who had been notably absent from similar peace negotiations in Denmark earlier was present. Ukraine claimed that China did not object that the country’s territorial integrity should be respected whilst the Ukrainian President expressed hopes that the Jeddah event was a steppingstone towards the practical implementation of Ukraine’s 10-step-peace formula and a global peace summit, ideally held in the autumn. Despite Russia being excluded from the gathering, it felt the need to make it clear that it currently sees no grounds for peace agreement with Ukraine.

The palpable or tacit will or the pretence of it from Russia’s allies and adversaries to push for peace talks to end the 21st century nightmare is discernible, but our cynical selves are dubious about any imminent breakthrough. The Ukrainian bottom line, justifiably, is that any potential agreement must include Russia giving up occupied territories, including Crimea. Russia will do everything it can to prolong the war until after the US presidential election in the hope that the Republican candidate, whoever it is, will prevail and the US support of Ukraine would considerably wane. The war, therefore, in the heart of Europe looks a protracted one, at least from this chair, meaning that as long as the warring parties are at each other’s throats oil will plausibly remain the hostage of the most disturbing conflict of recent times.

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