Energy weekend roundup – sanctions, policy, OPEC+, asset exposure

Energy weekend roundup – sanctions, policy, OPEC+, asset exposure

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Russia/Ukraine news dominated weekend headlines, as diplomacy moved forward, financial sanctions accelerated and violence continued in Ukraine. Many of the geopolitical updates will move commodity markets, and come in concert with energy-related policy statements. OPEC+ rumors swirled, as France’s Macron spoke with Saudi, and Iran returned to Vienna to discuss a draft nuclear accord. BP’s (NYSE:BP) plan to divest the Company’s Rosneft (OTCPK:RNFTF) holdings, announced Sunday, could impact a number of peers with direct exposure to Russian hydrocarbon production.

Over the weekend, the US and other Western governments announced that select Russian banks would be removed from the SWIFT payments system. It was further announced that sanctions targeting Russia’s central bank would be imposed. In a press call, the White House indicated that energy-related payments would not be impacted by the new sanctions. However, commodity traders said flows of Russian commodities to the West will be severely disrupted or totally halted for days or weeks, until clarity is established on exemptions, according the Reuters.

As it relates to energy directly, Germany’s U-turn over the weekend was notable. After lobbying for months to exclude nuclear and gas from the European energy taxonomy, Germany announced that it will build two new LNG terminals, raise the country’s natural gas reserves, and consider extending the life-span for coal and nuclear power plants. Just last week, Shell’s (NYSE:SHEL) LNG outlook pointed towards tighter LNG markets through the middle of the decade, and before the prospect of increased European demand or stockpiling. Coal markets are similarly tight, with Newcastle thermal coal prices at record levels.

In an op-ed over the weekend, Citadel’s Ken Griffin said “the U.S. should frack more, so it has the gas needed to wean Europe off Russian pipelines” (NYSE:LNG) (NYSE:TELL). While White House Press Secretary Jen Psaki referred to calls for increased drilling as a “misdiagnosis.” Rather, she said that this actually indicates, in President Biden’s view, that the US needs to reduce reliance on oil.

Adding to commodity headlines over the weekend, France’s Macron spoke with Saudi’s crown prince, and Iran appeared to drag their feet on sanction negotiations. In a call with Macron, Saudi reportedly stated that the Kingdom is both committed to the OPEC+ agreement, as well as stability and balance in oil markets. Giving few policy hints ahead of this week’s OPEC+ meeting. While Iran’s chief negotiator said, “Iran accepts no deadlines” in reaction to media reports that the United States had set a deadline for nuclear negotiations.

BP (BP) announced Sunday that the Company will divest of it’s ~20% holding in Rosneft (OTCPK:RNFTF). While it was reported that Austria-based OMV (OTCPK:OMVKY) would hold a crisis meeting on Monday, to discuss its financing of the Nord Stream 2 pipeline. These announcements are sure to catch energy investor attention, as peers Shell (SHEL), Exxon (NYSE:XOM), and most notably Total (NYSE:TTE) operate assets in Russia and may face divestiture pressure.

On the back of the weekends news, Goldman raised their one-month Brent oil price forecast to $115, as WTI traded up ~5% in futures trading Sunday night (NYSEARCA:USO). In coming days, energy markets are likely to remain focused on the impact of financial sanctions on physical commodity markets, if any. At the same time, investors will be keeping an eye on policy statements that could change the outlook for fossil fuel demand in Europe in coming years.

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