Russia - General Discussion.

[SolarWind]

I'm kind of an amateur when it comes to international commodity trade, so correct me if I'm wrong.

The thing is, the way I see it, the sanction increase the price of energy to an extent that the Russian could still make considerable profit selling their product at below market price. I don't know to what extend though (perhaps someone more knowledgeable could clarify), it could be that these profits are less than what they could be getting had they are not sanctioned by the west, perhaps not, or perhaps their profit actually increase. From what I've read, OPEC are willing to increase production to drive down the price of oil, but to what extend? With the risk of recession thanks to the recent interest rate hike by the fed, would that not drive demand for oil down? Based on my own limited knowledge and logic, The only way for Saudi to displace Russian oil in Chinese market, is if the market price for it becomes competitive with respect to Russian oil, because I doubt the Saudi wants to sell them at anything other than the market price. So they have to increase production, but they don't want to tank the price of oil too much, which is likely with risk of global recession in the horizon. So even with increased production, I doubt the price of oil will be competitive with what Russian is offering, and as long as the situation remains the same, there will always countries, especially poorer ones, that will look to Russian source to meet their domestic needs.

1. Oil prices are affected by many factors, but whatever the price is at any given time, discounts and lower market share still mean lower revenues and profit than otherwise.
2. With Russia forced out of some markets, Saudi Arabia gains more market power and can more easily influence the price in these markets (their demand curve gets steeper). In theory, it might be possible for them to increase supply and make greater profit by selling more, though at a lower price.
3. This is exactly why Russia will continue selling oil at a discount to China because otherwise Saudi Arabia and other players could increase their production and sell there as well, while Russia's options are more limited.

 

[SolarWind]

If that happen, then it's means West still buying Russian oil. If not, where they can get the oil if other producers like Saudi fill most of Asian market demand again. Again that's where the market shift comes. The supplies is finite, then if Middle east still send most their Hydrocarbon to Asia (as it is now), it will happen if EU already got other Oil. Remember most American oil (not US oil, but continent of America), also already slotted for North American demand (despite huge North America production).

So where EU will get Russian oil replacement if not most from Middle East ? Then how Asian market will get oil if supply from Middle East taken by Euro ? The answer is Russia. That's how market work.

The US can produce more oil, the North American and European demand for oil could be reduced due to an increase in electric and natural gas vehicles, Saudi Arabia can produce more oil, and other countries can produce more oil.

 

[Ananda]

Do Saudi increase the Production much ? Do other producers increse production also ? Even the North American producers reluctant to do it. No matter how hard Biden push them.

Again when Russia push from some Market, What happen is market shift. Because the supply is finite. Even Saudi and middle east producers told in latest OPEC meeting, there're no capacity in the world available to replace Russian oil

OPEC tells EU it's not possible to replace potential Russian oil supply loss

OPEC told the European Union on Monday that current and future sanctions on Russia could create one of the worst ever oil supply shocks and it would be impossible to replace those volumes, and signalled it would not pump more.

www.reuters.com

So it will be adjustment in market, however when equilibrium reach, don't think Russia will discount for long.

the world demand for oil could be reduced due to an increase in electric and natural gas vehicles, Sa

Yes, I already put that potential. However 'when' it will happen ?

Saudi Arabia can produce more oil, and other countries can produce more oil.

Tell that to those producers if they want it. Get on reality of those producers cost calculation. Why they want to increase much and invest much on production increase if this price hikes will not last for years to come ?

If the greenies dream come through, why then the oil producers want to increase the production. In the end the realities of Oil Supplies in the market, there are no capacity to replace Russian Oil. That's the fact that OPEC told, and that's why oil supply is finite.

 

[SolarWind]

Tell that to those producers if they want it. Get on reality of those producers cost calculation. Why they want to increase much and invest much on production increase if this price hikes will not last for years to come ?

You make a good point, but the way I see it OPEC would not have to replace all of Russia's production, just some of it.

 

[Ananda]

but the way I see it OPEC would not have to replace all of Russia's production, just some

If they want, if they see the margin will be enough to compensate the increase cost and investment, and if they see it is worth to keep the demand trend.

Too many factors, and that's why they (OPEC) say no capacity to replace Russian oil. That's why I said if this green energy initiatives manage to come to reality (as the greenies dream), then there's much less incentives for oil producers to invest more on production increase.

In the end those combo factors that create why hydrocarbon supply is finite. Most importantly why should they want to Invest on something that are not clear yet, rather then enjoy present margin with this condition ?

Yes, Russian Hydrocarbon global market share will potentially decrease, but not much, as market shifting will happen. There's potential new Russian buyers will not take 100% of previous Euro buyers, but the difference in the end I don't think will much.

More importantly (related to the collective West trade war goal), will not reduce much on Russian hydrocarbon margin. In fact if present oil prices stay around USD 90-100 (let alone more as latest trend shown), give Russia continues more margin then before the war (even when they sold at discount).

 

[swerve]

IIRC Russia can't maintain its pre-war export levels by switching to new customers because of infrastructure constraints. New pipelines and/or terminals would have to be built. This could be overcome, but would take time & money.

 

[Ananda]

IIRC Russia can't maintain its pre-war export levels by switching to new customers because of infrastructure constraints.

From on set yes, that's probable outcome initially. However the question is how much the different, and how long the period in adjustment to new equilibrium. When Russia customers change from Euro to Asia, then they have to relied more on Shipborne transportation (instead pipeline infrastructure). However this's actually how Most Asians now getting their hydrocarbon imports from middle east. So the Asian infrastructure customers side not going to change much.

Thus the question will come back toward availability of Tankers from Russia to Asia. While for China on longer term can actually can get better supply with adjustment on existing Siberian or Central Asian fields pipeline.

Before Russia output mostly taken by Euro, thus China relied more to Middle East (asside their own production). In theory Russia and China can make new extensions. It will cost time and money, but perhaps will not as extensive initially thought by Western Analysts.

That's why it will be adjustment period for both buyers and producers Globally due to this market shifting. How far the adjustment will all back to how far Euro will cut supply from Russia. Thus how much Euro must find new supplies in the market.

Personally I'm still not convince all countries in Euro zone willing to cut 100% Russian supplies, as this means getting more expensive supplies from somewhere else.

 

[SolarWind]

If they want, if they see the margin will be enough to compensate the increase cost and investment, and if they see it is worth to keep the demand trend.

Too many factors, and that's why they (OPEC) say no capacity to replace Russian oil. That's why I said if this green energy initiatives manage to come to reality (as the greenies dream), then there's much less incentives for oil producers to invest more on production increase.

In the end those combo factors that create why hydrocarbon supply is finite. Most importantly why should they want to Invest on something that are not clear yet, rather then enjoy present margin with this condition ?

Yes, Russian Hydrocarbon global market share will potentially decrease, but not much, as market shifting will happen. There's potential new Russian buyers will not take 100% of previous Euro buyers, but the difference in the end I don't think will much.

More importantly (related to the collective West trade war goal), will not reduce much on Russian hydrocarbon margin. In fact if present oil prices stay around USD 90-100 (let alone more as latest trend shown), give Russia continues more margin then before the war (even when they sold at discount).

The sanctions against Russian oil are essentially barriers to trade. According to the International Trade theory, import restrictions will increase oil prices in those markets that block Russian oil, but lower oil prices elsewhere, ceteris paribus. Such is the case we are seeing, whereas we talk about a discount, it is, essentially, in the theoretical framework, the result of lower prices for oil in markets that have not blocked Russian oil. So long as there is no arbitrage, that is reselling of Russian oil, and the constraints, or sanctions, remain, the situation will continue.

What you say about readjustment to new equilibrium would be true if markets were free, or laissez-faire. But this by design and definition is not the case.

 

[vonnoobie]

Even oil sent from Europe to China instead will be limited as will be gas. Via sea routes well that will already be difficult as a number of companies have stopped taking on Russian oil so available oil tankers are already reduced and for routes at least from the West are long or tricky depending on the time requiring an ice breaker to escort (Artic passage, Which the number of ships that transit it can be counted on the hands of just 7 people or less) or having to travel the long route through the Suez canal.

While they have pipelines the Eastern Siberia-Pacific ocean pipeline only has a capacity of 1.6 million barrels a day of which 600,000 are for china (I imagine upgrades have since been done as have read articles China importing via pipeline 750 - 800,000 barrels a day while the Power of Siberia I gas line only has a capacity annually of 38bcm which it has yet to even reach full capacity. Seeing Europe imported along the lines of 2.5m b/d and 220bcm of oil and natural gas. For China to take over all of the EU supply they will have to at least triple the oil pipe line capacity into China and and increase gas pipe line capacity by almost 480% assuming they was to take all of the EU gas and oil.

Simply put Russian supplies are so deeply built up around supplying Europe that they for the next 5 to 10 years wont be able to replace that customer base to that level while Europe just doesnt have the options to replace the Russian sources at least in a meaniful time.

 

[Ananda]

sanctions against Russian oil are essentially barriers to trade. According to the International Trade theory, import restrictions will increase oil prices in those markets that block Russian oil, but lower oil prices elsewhere, ceteris paribus.

That's accademic theory and in real world can only happens if all significant market follow that. However on this case only West and few allies outside Euro and North America that follow. This Russian access to other market still open, and other market will still buying Russian if the condition meet.

In other words outside Western market, most still working with Russian trade more or less same. With adjustment on financial payment method. So not necessarily Russian price will be lower all the time. Right now Russian give discount mostly to increase on logistical costs on transportation of their Hydrocarbon. Which is why China and India demand discount to compensate. They're also give discount to entices new market. Thus there's no guarantee it will happen forever.

you say about readjustment to new equilibrium would be true if markets were free, or laissez-faire.

You are thinking on Equilibrium on ideal academic definition in theoretical book. In reality there's no equilibrium in real condition happen because no interference on market mechanism. Market mechanism in reality always work to react on design and interference frm big players.

What happened now in energy market is Political interference on market mechanism. However market will find adjustment, and then reach their own new equilibrium. Understand that in real condition market equilibrium always due to adjustment on certain design and interference.

There's never been true laissez-faire condition in real world. What happened is market mechanism will find their own adjustment toward any interference in the end.

 

[John Fedup]

It depends with the overall Global market demand some years in the future. If the 'greenies' wishes comes through, that the green energy will replace most of the hydrocarbon, then the most efficient oil producers that will keep the market (whatever left of that).

However with demand of the energy rising, even green energy can replace some hydrocarbon demand on some more advanced economy, doesn't mean the rest of the world will transfer into that direction for at least another decade or two.

I don't see even from EU and North America (unless they go big on nuclear again), those 'other' green energy can replace much of hydrocarbon demand. Thus if they cut off Russia, then they will take supply from other producers. Which means some other buyers still have to go to Russia.

This discount price that Russia done, is an incentive from them to entices new buyers. One of the effect of sanction that work well from Collective West actually not cutting off Oil procurement from Russia, but creating difficulty for Russia on payment system and Insurance coverage. This's which making the logistics costs on getting Russian oil increase, which in turn making Russia offer discounts.

However it is just part of market adjustment. There will be adjustment on Tankers and payment system also different insurance coverage later on. The new equilibrium perhaps going to make Russian still provide discount for some market, but I don't think it will be for all.



If that happen, then it's means West still buying Russian oil. If not, where they can get the oil if other producers like Saudi fill most of Asian market demand again. Again that's where the market shift comes. The supplies is finite, then if Middle east still send most their Hydrocarbon to Asia (as it is now), it will happen if EU already got other Oil. Remember most American oil (not US oil, but continent of America), also already slotted for North American demand (despite huge North America production).

So where EU will get Russian oil replacement if not most from Middle East ? Then how Asian market will get oil if supply from Middle East taken by Euro ? The answer is Russia. That's how market work.

WRT nuclear, China will likely expand this option to a much greater degree than the EU and NA. India will likely do this also thus long term Russia will see declining revenue. This will take time of course assuming no dramatic climate event forces acceleration.

 

[SolarWind]

That's accademic theory and in real world can only happens if all significant market follow that. However on this case only West and few allies outside Euro and North America that follow. This Russian access to other market still open, and other market will still buying Russian if the condition meet.

In other words outside Western market, most still working with Russian trade more or less same. With adjustment on financial payment method. So not necessarily Russian price will be lower all the time. Right now Russian give discount mostly to increase on logistical costs on transportation of their Hydrocarbon. Which is why China and India demand discount to compensate. They're also give discount to entices new market. Thus there's no guarantee it will happen forever.

That's not exactly true. The West and its allies are very large oil markets and Russia is a very large supplier, so the trade barrier should cause a significant price differential between the countries enacting sanctions and to which Russia cannot sell oil, versus the rest of the world where Russia can sell oil, regardless of any action by the rest of the world, barring, perhaps, arbitrage that would be up to sanctions enforcement to prevent or stop.

You are thinking on Equilibrium on ideal academic definition in theoretical book. In reality there's no equilibrium in real condition happen because no interference on market mechanism. Market mechanism in reality always work to react on design and interference frm big players.

What happened now in energy market is Political interference on market mechanism. However market will find adjustment, and then reach their own new equilibrium. Understand that in real condition market equilibrium always due to adjustment on certain design and interference.

There's never been true laissez-faire condition in real world. What happened is market mechanism will find their own adjustment toward any interference in the end.

The market will continue to be dynamic and much will be up to sanctions enforcement. We will just have to wait and see what happens.

 

[Vivendi]

A Russian military ship has violated Danish territorial waters close to the island of Bornholm, and the Danes are upset. The Russian ambassador has been called for a meeting. The Danes say this kind of behavior is "completely inadmissible". The incursion happened shortly after a Russian military plane violated Danish airspace.

"Let me be clear: bullying methods do not work against Denmark. We will not accept such Russian provocations. That's why we respond consistently and promptly. I think it is telling that while we in Denmark celebrate democracy, free conversation and popular rule at the People's Meeting, Russia chooses to make such provocations with military vessels. It speaks for itself," says Foreign Minister Jeppe Kofod.

Via Ritzau

Send din pressemeddelelse med det samme Via Ritzau – den direkte linje til medierne.

via.ritzau.dk

According to Danish navy, the offending Russian vessel was a corvette: Russisk korvet i dansk farvand i nat

 

[Ananda]

The West and its allies are very large oil markets and Russia is a very large supplier, so the trade barrier should cause a significant price

Collective West are large oil consumers, but not put dominations on oil market consumption as the 70's or 80's. World oil market landscape already change significantly. Current price increase mostly due to inflationary pressure on COVID recovery. Again this trade war increase the cost, that push more inflationary pressure. However not the main drive.

Oil Consumption by Country - Worldometer

List of world countries by Oil Consumption in million cubic feet (MMcf) and per capita.

www.worldometers.info

What you're suggesting will only work if the situation similar with previous Iran oil embargo, which is hold also by other large non Western oil consumers. However Russia not in Iran condition (no matter how despreate Western Politicians want to potrait it), on global oil market. More importantly even know the biggest consumers of Russian oil still Collective West.

Again, oil supply is finite and no plan from any producers to increase the supplies significantly. When Euro want (and if able) to cut completely their dependency to Russian oil, they have to take oil in the market that right now going to other consumers (mostly Asian). Thus they have to outbid other consumers, which most likely have to go other large producers. That's where Russia come, and that's where the market shift comes.

Current increase in China and India consumption toward Russian oil, enable other big producers (like Saudi) to reduce their supply to both market, and redirect that to Euro zone. That's what's been call market shifting. This is real market conditions, and not theoretical text book trade barriers that you are talking.

China will likely expand this option to a much greater degree than the EU and NA. India will likely do this also thus long term Russia will see declining revenue.

Yes, that's why oil producers are reluctant to increase their investment costs for more substantial oil supply (which being hope by Biden and Collective West politicians), to compensate Russian oil. That's why OPEC says no capacity to replace Russian oil in world market, which's why what happen is going to be market consumption shifting.

In the end with all this green initiatives, oil producers knows their margin on years to come will be push down. Their market potentially will be reduced on proportions toward global energy consumption. However it will also take years to come, and relating to this thread, will not going to effect Russian margin much within this few years, as West hope when they're launch their trade war with Russia.

 

[SolarWind]

Collective West are large oil consumers, but not put dominations on oil market consumption as the 70's or 80's. World oil market landscape already change significantly. Current price increase mostly due to inflationary pressure on COVID recovery. Again this trade war increase the cost, that push more inflationary pressure. However not the main drive.

Oil Consumption by Country - Worldometer

List of world countries by Oil Consumption in million cubic feet (MMcf) and per capita.

www.worldometers.info

What you're suggesting will only work if the situation similar with previous Iran oil embargo, which is hold also by other large non Western oil consumers. However Russia not in Iran condition (no matter how despreate Western Politicians want to potrait it), on global oil market. More importantly even know the biggest consumers of Russian oil still Collective West.

Again, oil supply is finite and no plan from any producers to increase the supplies significantly. When Euro want (and if able) to cut completely their dependency to Russian oil, they have to take oil in the market that right now going to other consumers (mostly Asian). Thus they have to outbid other consumers, which most likely have to go other large producers. That's where Russia come, and that's where the market shift comes.

Current increase in China and India consumption toward Russian oil, enable other big producers (like Saudi) to reduce their supply to both market, and redirect that to Euro zone. That's what's been call market shifting. This is real market conditions, and not theoretical text book trade barriers that you are talking.

I understand your opinion but think that the theoretical predictions will still hold. I guess time will tell.

 

[Ananda]

‘Shooting themselves in the foot’: Western sanctions on Russia

The more tension there is between Russia and the West, the higher the prices will be for commodities, analysts say.

www.aljazeera.com

Time will tell, but my perception is similar with market analyst especially in energy, Collective West sanction is overshoot themselves. West should stick the sanction on the area on high tech production including aerospace, semiconductor etc that will hurt Russia more then themselves.

When I saw Western Politicians and support by some of 'analysts' in mainstream media talk in March and April on the sanctions, all I see is this sanction (especially on the energy) being taken by emotional, over confidence and arrogance thinking.

"Collective West economy is much bigger then Russia, and West will crush Russian economy". This's basically those 'analysts' and pundits that being put by Western Mainstream media put in the beginning of the sanctions, and some of them still talk like that until now. While market analysts that warning is not that simple, being tone down and only recently some of mainstream media in West give more time to them.

Many market analyst already warn as I have put and repeat few times already. Western economy still in recovery from covid, inflationary pressure exists cause of that, don't add more cost/pressure by 'playing' with your main energy supply (Russia).

Russia and Collective West market players knows well there will be no turning back on Russia and West trade relationship. However in Energy should be done more gradually and more tactfully. No need those big talk from Ursula and Co in Brussels, which only create more panic within EU energy market themselves.

Let EU and Russia gradually find their own market shifting, Both of them already knows they will have to find new suppliers and buyers to compensate the trading relationship demise.

Yes time will tell how West and Russia and the rest of the world will adjust. However adjustment will happen, new equilibrium will be created and by that time we can see how the real costs adjustment being inflicted to all parties. We can see by that time whose getting worsen deals and whose get better hand or in the end new adjustment just shift the status quo.

 

[SolarWind]

‘Shooting themselves in the foot’: Western sanctions on Russia

The more tension there is between Russia and the West, the higher the prices will be for commodities, analysts say.

www.aljazeera.com

Time will tell, but my perception is similar with market analyst especially in energy, Collective West sanction is overshoot themselves. West should stick the sanction on the area on high tech production including aerospace, semiconductor etc that will hurt Russia more then themselves.

When I saw Western Politicians and support by some of 'analysts' in mainstream media talk in March and April on the sanctions, all I see is this sanction (especially on the energy) being taken by emotional, over confidence and arrogance thinking.

"Collective West economy is much bigger then Russia, and West will crush Russian economy". This's basically those 'analysts' and pundits that being put by Western Mainstream media put in the beginning of the sanctions, and some of them still talk like that until now. While market analysts that warning is not that simple, being tone down and only recently some of mainstream media in West give more time to them.

Many market analyst already warn as I have put and repeat few times already. Western economy still in recovery from covid, inflationary pressure exists cause of that, don't add more cost/pressure by 'playing' with your main energy supply (Russia).

Russia and Collective West market players knows well there will be no turning back on Russia and West trade relationship. However in Energy should be done more gradually and more tactfully. No need those big talk from Ursula and Co in Brussels, which only create more panic within EU energy market themselves.

Let EU and Russia gradually find their own market shifting, Both of them already knows they will have to find new suppliers and buyers to compensate the trading relationship demise.

Yes time will tell how West and Russia and the rest of the world will adjust. However adjustment will happen, new equilibrium will be created and by that time we can see how the real costs adjustment being inflicted to all parties. We can see by that time whose getting worsen deals and whose get better hand or in the end new adjustment just shift the status quo.

The turning point in the relationship between the West and Russia appears to have been made many years ago, possibly prior to the events of 2014, starting with the Magnitskiy events. Now, given Russian aggression in Ukraine, apparent expansionism, and war crimes, it appears the West simply cannot even trade with Russia any longer, given the West's ethical convictions and values. It may seem irrational to some observers who do not fully share our ethical convictions and values, but it does not have to be rational.

 

[STURM]

It may seem irrational to some observers who do not fully share our ethical convictions and values, but it does not have to be rational.

Who's ''we''? Westerners I presume? What about bilateral ties; do you foresee the possibility of some Western countries going as far as severing official relations if the current situation persists?

 

[SolarWind]

What about bilateral ties; do you foresee the possibility of some Western countries going as far as severing official relations if the current situation persists?

If you are asking for my opinion, then no, I do not foresee such a possibility. That is because there should always be a pathway for dialogue.

Something to consider:

U.S.-Russian Relations | Archives | CSIS

Analyzing developments in all aspects of the U.S.-Russia bilateral relationship.

www.csis.org

Russia–United States relations - Wikipedia

en.wikipedia.org

 

[Feanor]

Everyone is talking about market readjustment, but it seems Russian oil is just making it to western markets by passing through third countries. It remains to be seen whether this is a temporary workaround that will get shut down or a permanent hole in the sanctions.

WSJ News Exclusive | Russian Oil Producers Stay One Step Ahead of Sanctions

Russia is getting oil to market by using ship-to-ship transfers and tapping Indian refineries to hide the origins of gasoline and other fuels.

www.wsj.com