The oil suite remains rather stunned after the cancellation of Saudi Sunday. With the Thanksgiving holiday in the US in full swing and the risk aversion that has ensued, some of the crazy has left the market as those that imbibe in oil trading indulge in a prolonged bout of navel gazing, seeking to find order among the shared carnage that the price action has endured. Judging by the overnight range and volume, there is little to show any hurried fresh positioning and even though there have been a few decent markers without the US that beg reaction, such is the state of ossification that it will take something of magnitude for our fraternity to peer above the ramparts.

Yesterday’s PMI data probably could not have come at worse time for OPEC as it strives to string a narrative of unity together, the poor showing was foregrounded by the Australian data that missed on all three-counts of Manufacturing, Services and Composite with the trio all firmly remaining in contraction. Eyes then turned to Europe, and if any thought there might be some spark from the Old World economies then they were sorely disappointed as France matched Australia with a three-fold miss, and although Germany, UK and the Eurozone all scored above expectation, it was only the UK’s Services and Composite that managed to creep over the 50 mark of expansion. Taking note of France and Germany Manufacturing PMI, the two biggest economies of Europe and their 42.6 and 42.3 respective readings and the Eurozone’s 43.8, the likelihood of new demand coming from the continent is tantamount to zero giving more reason to be wary for oil investors and another layer of headache for OPEC.

 

A Saudi/Russia showdown is needed, not an African one

When it comes to marriages of convenience, one wonders how long the current union with Saudi Arabia and Russia will continue. It must be that the Middle East Kingdom’s patience is wearing thin with its ally in supply cuts, for the constant stream of recent news feeds would have that Russia is not finding it particularly hard in getting oil to water in export or indeed, not being able to avoid the press relating to it doing so. It does seem a strange week to announce that you are about to introduce more refined product onto the market at the same time being part of a cartel that insists on a program of cutting supply to bring stability to oil prices. On September 21 this year, a ban on fuel exports was introduced because of increased domestic prices and shortages, last Friday gasoline exports were allowed to resume in full and on Wednesday Deputy PM Novak said that this will soon similarly apply to diesel fuel exports.  

This all comes at a time when there is a great brouhaha concerning what appears to be sanction busting by shipping companies that are able to skirt any scrutiny from the G7 countries signed up to enforcing a price cap for Russian oil. Such is the success of Russian oil making it to far flung destinations that the US, part of the G7 agreement, has in recent times began to single out vessel owners and charterers shipping oil beyond the price of the $60 cap and the US Treasury has been in communication with the global freight community that engage in moving oil, reminding on their responsibility and adherence to restrictions. According to Petroleum Intelligence Weekly, the main problem the G7 faces is that more than two-thirds of the tankers carrying Russian crude are not covered by the UK’s P&I (protection and indemnity insurance) because being part of the insurance group would require documentation that the oil being transported on a particular ship had been sold below the equivalent price cap.

The European Commission has been talking a big fight in recent weeks as it too grapples with the amount of Russian oil that freely flows, the bloc stands accused of duplicity as the awful truth is that many of its member still struggle to make up the shortfall since curbs have been introduced on Russia’s oil sector and talk is cheap compared to the pragmatism needed for Individual nations to sate their energy needs. The Financial Times reports one senior European government official saying ‘almost none’ of the shipments of seaborne crude in October were executed below the $60 cap that the G7 allies have attempted to impose. Still, at least there is willing shown earlier this month by EU lawyers who call for a full denial of access to Russian fossil fuels and companies that deal in them to the European market with the floating of an idea that Denmark could be tasked with monitoring for ships that are not registered under P&I and block non-conforming tankers. Pitting its armed forces against a Russian navy riding subsequent convoy and made trigger-happy by the Ukraine war, is probably not what Denmark has signed up for, but the very public sharing of this idea brings focus on just how much Russian oil is getting to market.

The standout question is that with such attention to Russian oil flow, can it really be complying to the voluntary cuts that is the backbone of its diplomatic ties with Saudi Arabia? The marriage of convenience is made moot by an inconvenient truth that Russia is at service to the needs of its exchequer more than it is has need to service a notion of oil price stability. African nations of OPEC are playing patsy to Russia’s practices, after all, they have never offered a voluntary production cut and can hardly be charged with overproduction, they are a different convenience, one that allows Saudi Arabia some thought space before it must finally decide on how to deal with Russia.
 

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