Russia apparently invaded Ukraine on Tuesday, which has shaken markets — and the oil market in particular — given that Russia is one of the biggest oil-producing countries in the world. This probably also means higher prices at the pump, eventually, even though gas prices are high already.
According to AAA, the average gas price in America is $3.531 per gallon, actually down from yesterday, though minutely so, when the average was $3.532 for regular. A week ago it was $3.498, and a month ago it was $3.328, while a year ago it was almost a dollar less than today, at $2.635. And while some of the uncertainty regarding Ukraine and Russia is likely “baked in” to those prices, as Wall Street guys like to say, a lot of it still isn’t, simply because no one knows the future.
Anyway, the Economy Knowers at The Wall Street Journal say that simple inertia might slow things down, for now.
On Tuesday, Mr. Putin told a gas conference that Russia will continue to provide uninterrupted supplies of gas, according to a state news agency.
Traders, analysts and lawyers say the first round of sanctions imposed in response to an invasion would likely avoid measures that directly disrupt Russian oil and gas exports. Nonetheless, they say sanctions could reverberate through the Russian economy and commodity markets in unpredictable ways, for example by making it difficult for traders to finance and pay for cargoes of Russian fuel.
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“I don’t think a full export ban is going to be imposed,” said Tamas Varga, an analyst at brokerage PVM Oil, citing high gasoline prices and the coming midterm elections in the U.S. “The more important question is: How is Russia going to react? There is nothing that could prevent them to limit supplies to Europe or anywhere else in the world.”
The Economy Knowers at Bloomberg, meanwhile, seem to agree that there isn’t much cause for alarm, just yet, but for a different reason, which is Iran.
Yet rising prices are being tempered by the possibility of an Iranian nuclear deal. European and Russian diplomats agreed that negotiations over Iran’s nuclear program have reached the endgame, signaling potential relief for global energy markets if sides can agree to settle final differences. Any restoration of Iranian barrels to the global market would help ease tightness as OPEC and its allies struggle to meet its output goals.
“As Ukrainian tensions continue to mount, betting on higher crude prices has become a favorite trade, but expectations of additional Iranian supply has somewhat put a cap on the oil price rally,” said Ed Moya, Oanda’s senior market analyst for the Americas.
Meanwhile, The New York Times says that everything is interconnected, and, well, will you have a thought for oil and gas companies in this trying time.
But some of the financial sanctions being considered, including restrictions on dealing with major Russian banks, could disrupt Western payments for the oil and gas, which account for about half of the country’s exports.
In addition, sanctions could create difficulties for Western oil companies with interests in Russia. The list of such assets is extensive. Shell, Europe’s largest oil company, has a stake in a liquefied natural gas project on Sakhalin Island off eastern Russia. Exxon Mobil is a partner in an oil facility in the same area. TotalEnergies, the French giant, participates in a liquefied natural gas operation in the Russian Arctic. BP has a nearly 20 percent share in Rosneft, Russia’s national oil company.
“Some of the financial sanctions under consideration in Washington could make it challenging for” such companies to continue operating in Russia, wrote Helima Croft, an analyst at RBC Capital Markets, an investment bank, in a note to clients.
So there you have it, folks: gas prices may go up because of what’s happening in Ukraine, or they may not, because we built a world where the production of oil is both too big to fail and where everyone is mutually dependent on that remaining so. Or something. Still, strap in, as Joe Biden did later announce Tuesday afternoon that the U.S. is going ahead with sanctions that, “cut off Russia’s government from Western finance,” the full implications of that unclear as of this writing. Very (not) exciting times we live in.