Newscasts - Market Insight: The Ukraine war and Russian oil supply concerns
22/11/2024 18:00
Click the following link to watch video: https://share.newscasts.refinitiv.com/link?entryId=1_7z8bgal6&referenceId=1_7z8bgal6&pageId=Newscasts Source: 'Reuters - Business videos' Description: Oil prices are set for a weekly gain after Ukraine and Russia fired missiles at each other, adding to the market's geopolitical premium. Kpler's Reid l'Anson explains why he thinks there isn't likely to be any meaningful impact on Russian supply. Short Link: https://refini.tv/4fEPCbJ Video Transcript: Oil prices are on track for a weekly rise as the Ukraine war intensifies. Welcome to Market Insight. I am Elena Casas. Oil prices were on track for gains on the week after Ukraine fired US and British made missiles into Russian territory, and Moscow responded by firing a ballistic missile at Ukraine. The conflict raises the risk of supply disruption from one of the world's largest producers. Well, to discuss this and other factors moving the price, I am joined now by Reid I'Anson, Economist at Kpler. Reid, hello. Markets are clearly concerned about the prospect of disruption of the Russian supply even though it has been heavily sanctioned. Why is that? Obviously, as we see ratcheting tensions within Ukraine, the concern over supply disruption is on the table. However, I think for those of us at Kpler, we are assuming as of this moment that Russian crude flows will continue at a pretty normal pace that we have seen over the last year or so. And this is mostly based on just historical precedent. If you remember, when we came into the war in early 2022, there were a lot of concerns that Russia would be unable to deliver its crude to the market, and yet we really saw a big recovery inflows, especially into 2023. And so, I think as of this point, while we have seen a ratcheting in tensions, you will likely continue to see Russia push a lot of oil towards India, towards China, and towards Turkey in particular. The incoming Donald Trump administration has promised to try and end the conflict in Ukraine. What do you think it might mean for crude prices coming out of Russia? Yes, I think, overall, if there is some kind of negotiated settlement, which is very much an open question right now, it is kind of unknown- I think if there were to be some kind of negotiated settlement that provided more optionality for Russia to sell into places that are currently sticking with the US and sticking with our sanctions regime here, you could see that $10-$15 per barrel discount that Russia has had to kind of deal with over the last couple of years likely narrow or go away completely. But again, it is very much an open question right now if we get any kind of negotiated settlement. And if the United States does want to move forward and ease sanctions, will Russia fall- excuse me, will Europe follow suit? Obviously, the United States has not been a massive importer of Russian oil for quite a long time, so this is really a European story. They were obviously lifting a lot of Russian crude before the war began. And so, would they follow the Trump administration's lead? Donald Trump has also promised to turn up sanctions on Iran. What could be the implication of that for oil markets? At this point, we are assuming that Trump will likely look to pressure the Chinese to purchase less Iranian barrels. Keep in mind that China right now lifts almost all Iranian crude exports around 1.6 million barrels per day. We think by the middle of next year, maybe 500,000-600,000 B/D has come off the market. So, that would put Iranian crude exports at closer to a 1 million barrels per day. However, under that scenario, it is not necessarily bullish for oil prices because we think that Trump would successfully push OPEC+ to produce a bit more oil to cover the loss in supply out of Iran. How much willingness might there be though from OPEC+ to do that given that they have been reducing output in order to support the price? I think that there are a number of OPEC players who are ready and willing to pump more oil. They have wanted for a while now. Obviously, we have seen OPEC+ put off production increases over the last few months and kind of pushed back that timeline. So, I think that if OPEC players were given the opportunity to pump more oil, they would be more than willing to do so, especially with the Trump administration that has shown a willingness to cozy up to Saudi interests and Saudi geopolitical aims during his first administration. So, I think that this time around, we are likely going to see if the price starts to rise or if there is less supply on the market. Trump is probably going to start tweeting at Saudi Arabia and get pretty aggressive rhetorically. And that will likely lead to action out of OPEC+. What about domestic production, Reid? Donald Trump has promised to increase it. But is that actually an incentive for US oil firms to drill more? I think it is important to realize, when you are thinking about the context of the US president and domestic energy production, where Trump is going to make a lot of difference is on the infrastructure side. Quickening the pace of LNG export, infrastructure approvals, maybe reopening the construction of the Keystone XL Pipeline for Canada- that is really areas where Trump can make a big difference. Just when it comes to physical production decisions, that is going to really be dictated by prices. And so, next year, we taking a kind of medium-term conservative view, saying, maybe we get 300,000-400,000 B/D in oil production growth out of the US next year. Reid I'Anson, Economist at Kpler, thank you so much. And that is your Market Insight