Oil drama flares after Ukraine protests

Oil Drama

While everyone thought all the drama in the oil market (NYMEX:CLF14) would be coming from OPEC, it seems that it is coming from Ukraine that is moving markets. As the President of Ukraine faces protest as he snubs the EU in favor of Russia, it seems that Russia is diverting some supply to try to add to the tensions. The Orange Revolution is turning to Russian red as protestors who don't take kindly to Russia take to the streets as Russia plays hard ball using its energy resources to try to coerce former Soviet territories into joining their union. It's the EU versus Russia as Vladimir Putin tries to reassert control over former Soviet territory.

The Voice of America reported that the European Union on Friday criticized Russia for pressuring Ukraine into abandoning a landmark free trade deal with the European bloc. The snub by Ukrainian President Viktor Yanukovych, announced last week, reverberated through an EU summit in the Lithuanian capital, Vilnius, where German Chancellor Angela Merkel was captured Friday on video telling the Ukrainian, "We expected more." Mr. Yanukovych responded, telling the German leader, "The economic situation in Ukraine is very hard. And we have big difficulties with Moscow." The summit, which ended Friday, was expected to showcase the signing of the agreement. But as last minute negotiations failed, thousands of opposition protesters in Kyiv gathered for a second time this week in the center of the city to demand the president's resignation.

Yet now he is having second thoughts, but it may be too late. The Wall Street Journal reported that "President Viktor Yanukovych, facing the biggest political crisis in Ukraine in nearly a decade, reached out to the European Union on Monday in an apparent attempt to placate thousands of pro-Western demonstrators angry over his pivot toward Russia. But the EU's executive reacted coolly to the request for new talks, telling Mr. Yanukovych that the sweeping trade deal he refused to sign last week after six years of talks wasn't open for renegotiation—and warning him against using force to disperse the crowds barricaded on Kiev's main square."

Oil was ignoring the Ukraine turmoil until Reuters reported that Russian Urals crude reversed to a premium from a discount to benchmark Brent after Russia diverted some oil from export destinations to neighboring Belarus. Reuters reported that said Russian oil companies Lukoil and Rosneft have cancelled loadings of two Urals cargoes on Dec. 13-14 and 14-15 from the Baltic ports of Primorsk and Ust-Luga. Reuters says that the exports of Urals had been expected to drop in December after Russia approved a boost in deliveries to Belarus by as much as 750,000 tons after tensions eased in a separate dispute between the two neighbors over potash prices.

It seems if you play ball with Russia you get the supply that you need. If not then they will put the squeeze on you. The diversion of that supply means less oil for other countries, which gave Brent crude a boost. At the same time Russia was trying to send a message to the protesting masses that life will be easier if they decide to play ball. Yet the Ukrainian people value their independence and still have memoires of the dark days of Soviet domination. They also remember in 2004 during the Orange Revolution when the Russians tried to rig an election and poison Viktor Andriyovych Yushchenko.

Russia is also threatening Yugoslavia to cut off gas supply unless they pay a hefty amount for the gas or sign up for this new Russian trade union. Yet for OPEC at least in the Eyes of Ali Naimi Saudi Oil minister the world is just a beautiful place. Oil glut? What oil glut? The Saudi Oil minister says that demand for oil was "great," that global economic growth was improving and, indeed, that the market was in the best possible situation. He is not worried about more oil from Iran because that is a what-if scenario. The oil minister has continued to downplay the impact of surging U.S. production, which has caused some rare criticism of the OPEC leader.

Yet Naimi says that "I am not pessimistic about the market. The market is doing well for the past two years. Inventories are right-positioned. The market is in the best situation it can be. Demand is great, economic growth is improving, why do you want to be so pessimistic? "Why cut production? Demand is there," he said. "I want you to go with one message. Be an optimist. There is good economic growth, there is good demand, the market is big, and everybody is going to supply what they can to satisfy the demand." As far as Iranian oil a point of contention he says "'If,' 'if,' 'if.' Stay away from if. I want whatever he is having!

Dow reports Turkey said on Monday that it stands by a bilateral oil deal with Iraq's Kurdistan region that bypassed central government but sought to appease Baghdad by drawing it into the arrangement.

About the Author
Phil Flynn

Senior energy analyst at The PRICE Futures Group and a Fox Business Network contributor. He is one of the world's leading market analysts, providing individual investors, professional traders, and institutions with up-to-the-minute investment and risk management insight into global petroleum, gasoline, and energy markets. His precise and timely forecasts have come to be in great demand by industry and media worldwide and his impressive career goes back almost three decades, gaining attention with his market calls and energetic personality as writer of The Energy Report. You can contact Phil by phone at (888) 264-5665 or by email at pflynn@pricegroup.com. Learn even more on our website at www.pricegroup.com.

 

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