Vlad to the rescue? Putin steps in to calm nat gas crisis

Commodities

Vlad to the rescue… Looks like Putin has just come in to call a (temporary) halt to the gas crisis in Europe, finally stepping in with comments that have offered some stability to the market after a tumultuous morning/week.

Putin says:

  • Boosting gas supplies to Europe
  • Ready to stabilise global energy market
  • Gazprom supplies to Europe to reach new record
  • Increasing gas transit via Ukraine & will exceed contractual obligations for gas via Ukraine.

Henry Hub Nat Gas prices were offered on the comments/headlines that Russia is ready to help out. The situation remains difficult of course but could be that Putin has just put a ceiling on these crazy market moves for the time being. There are other factors but a boost in supply from Russia would ease immediate concerns in Europe. Longer-term of course the lack of fossil fuel capex in response to high prices is a big driver of prices staying higher for longer. Winter is coming and supplies are still very short and markets volatile. Plus how long does Putin play nice?

Anyway, it seems to have calmed the market for the time being. One thing you have to take from all this is that Nord Stream 2 is surely going to be approved soon…Merkel stressing in comments just a few minutes ago that it is not yet ready.

Henry Hub prices tumbled off the highs to test $6 again on the news crossing the wires. UK prices have meanwhile completed a heck of a round trip with a daily gain of 40% reduced to 4%. Whilst US nat gas prices are not directly correlated to the situation in Europe we can see that the comments from Putin hit prices as they crossed the wires. Oil was also pulled down on the comments.

Natural gas chart 06.10.2021

Stocks surge as Russia claims to have a Covid-19 vaccine

Equities

Stocks have leapt higher today after Russia claimed that it had registered the world’s first vaccine for the new coronavirus.

The Dow has climbed over 350 points higher and the S&P 500 has risen to within touching distance of the all-time high set in February. European stocks have held on to this morning’s gains.

Conversely, safe-haven precious metals are getting hammered, with gold now down over -4% at $1,940.00 and silver crashing -7% to $27.00.

Putin announces registration of world’s first coronavirus vaccine

President Putin claims that the virus works ‘quite effectively, it forms a stable immunity and, I repeat, has passed all the necessary checks’. He also said that one of his daughters has been given the vaccine.

The vaccine has undergone clinical trials, which have been completed in under two months. Phase three trials are expected to start on Wednesday and will involve countries including the United Arab Emirates, the Philippines, and Saudi Arabia.

The vaccine will be called ‘Sputnik V’ in overseas markets. The Russian Direct Investment Firm, Russia’s sovereign wealth fund, is backing the production of the vaccine and claims that over 20 countries have filed preliminary applications for a total of over 1 billion doses so far.

Doubts over Russian vaccine claims

While Putin has hailed the Russian breakthrough and stocks have moved sharply higher, the news has been met with scepticism elsewhere.

A spokesman for the World Health Organisation cautiously said that the body was in contact with Russia about the “possible pre-qualification process for a Covid-19 candidate vaccine which requires rigorous review”.

And former US Food and Drug Administration commissioner and Pfizer board member Dr Scott Gottlieb told CNBC today that, compared to the US efforts, Russia’s vaccine development is ‘certainly not ahead’.

‘They’ve cleared the equivalent, really, of a Phase 1 clinical trial in terms of putting it in 100 to maybe as many as 300 patients so it needs to be evaluated in a large-scale clinical trial,’ Gottlieb said.

Regardless of any cautious noises, markets are powering higher, with investors perhaps repricing their expectations for how far out a working vaccine is.

OPEC Preview: oil in a bear market

Week Ahead

OPEC Preview

December 5th, 2018

Production cut expected

OPEC and its allies convene in Vienna this week with expectations firmly favouring a supply cut in order to rebalance the market after the ramp in production seen ahead of the Iran sanctions. A cut in excess of 1m bpd seems assured, although it could be significantly higher than that. Anything up to 1.4m bpd seems anticipated, and therefore it may take more to significantly rally the market. A commitment to a longer and deeper cut will be required. Wire reports on Tuesday suggested a cut of at least 1.3m bpd is being worked on.

The meeting of the 26 OPEC and non-OPEC nations comes at a key moment for the market, with crude prices having slumped by around 20% or so over the course of October and November. The pace of that decline was startling and has undoubtedly forced a rethink of the increase in production we saw over the summer, particularly on the part of Saudi Arabia.

It’s not been alone: Saudi Arabia, Russia and the US have all been opening the taps this year. OPEC production in October hit the highest since December 2016 and was broadly flat in November. OPEC pumped 33.31m barrels in October, up 390k barrels from the month before. Saudi Arabian output is booming, climbing to a record 11m bpd. Undoubtedly this ramp cannot continue if the market is to rebalance given the declining expectations for demand growth.

Russian oil output hit a post-Soviet record high of 11.41 million bpd in October. However, this had dipped to 11.37 bpd in November. US production has surged to a record 11.475m bpd in September and is seen reaching 12.1m bpd next year (EIA). US production is now up 21% in the last year and the latest rise could mean more upward revisions to forecasts.

Trump factor

Donald Trump has repeatedly berated OPEC and others for trying to force up prices. Whilst there is pressure on the US-backed Saudi regime to acquiesce to demands to do nothing that would help lift prices, OPEC and its allies are set to push ahead. Although there are competing factions and priorities, no member wants a repeat of the collapse in prices four years ago.

US shale casts a long shadow. In particular, we must look at OPEC needing to act now to prevent a further squeeze on prices as more pipeline capacity comes on stream next year that would mean more US crude on the world’s markets. OPEC members are well aware that supporting prices is good for US shale producers, but they seem unwilling to go head to head again.

Qatar leaves

The question it leaves us with is to what extent OPEC is losing its relevance. Qatar may be a small player (approximately 2% of OPEC production), but it could suggest smaller suppliers are starting to lose faith in the Saudi-led cartel. Could it be the first domino? We must look at it in context of the regional powerplays. Whilst it may indicate a lack of consensus among members about cuts, it would be more likely to reflect the political tension between Qatar and its neighbours, in particular Saudi Arabia, which along with Egypt, the UAE and Bahrain is maintaining a trade embargo on the country. It would seem sensible for Qatar to distance its energy policy as much as possible from Saudi influence, particularly given its focus on natural gas over oil. It seems unlikely that Qatar’s decision will cast much of a shadow over the meeting or prevent an agreement.

Technical picture

Speculative positioning has turned south. CFTC figures show net longs down to their lowest in a year, down to 348k contracts by the beginning of November from 739k in February.

On the Brent daily chart, we see a firm bounce at the start of the week, with Brent breaking the downtrend resistance level and looking to push up to the 23.6% retracement of the recent down move at around $64.65. However yesterday’s failure to maintain any bullish momentum suggests there is little appetite at present for a pre-OPEC rally.

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