RE:RE:Speciallygooddelissio wrote: Experienced, I have followed your posts for a while on this board and .... hats off to you, you have my highest respect. Many thanks for sharing your thoughts and ideas.
The question about the possible war - is there a possibility of the oil price impact due to the international sanctions on Russia. Thank you.
Experienced wrote: Before addressing your response to my post, I would like to thank NP and especially Obscure for their posts. Obscure, your discussion of GS and the others in the "Investment Business" are accurate. I know because I was one of them at one time.
Speciallygood, I would like to apologize to you for my somewhat rude and flippant response to your post. You deserve better.
My response to your post wasn't so much that I know better than the person who wrote the article that you referenced, but I saw it as classic example that I saw so many times in my past life where a straw man is created. That straw man is then used to create a scenario which may turn out to be true but at the time it is written has no basis in actual fact or more importantly is not backed up by any facts or even a plausible explanantion of how it could happen. The scenario is then used as Obscure pointed out to create a certain impression which in turn encourages actions by the readers from which the firm can benefit and often results in the reader (client) losing money.
I don't know what Putin is thinking or whether he will decide to invade The Ukraine. I must admit that my knowledge of that part of the world is such that I view an invasion by Russia, at least beyond the Donbass, as highly unlikely. The reasons for that are lengthy and are for another time.
Irrespective of whether Russia does or does not invade The Ukraine, the question investors in SU need to assess is whether that action would result in an increase in the price of oil due to a supply shock.
To answer that question, people need to think about how a supply shock would happen.
Would it happen because OPEC decided to cut production because of the invasion?
Would SU and other Canadian oil producers cut production because of the invasion?
Would US frackers cut production because of the invasion?
Would Russia itself cut production because of the invasion?
If the answer to any of these questions is yes, then perhaps the price of oil will go up. If the answer to all four questions is no then the price of oil is unlikely to go up due to an invasion.
There was a time long ago that the price of oil did go up simply due to a conflict somewhere in the world but those days are long gone and people are generally more sophisticated than the "old days" and shrug these things off unless there truly is a supply or demand shock resulting from the conflict.
Thank you for your kind words - much appreciated!
Your question is a good one and gets to the heart of the matter.
When I look at a question like that I deal in facts and numbers and practicality.
After the Annexation of Crimea by the Russians, The West imposed sanctions on Russia which entailed some limits to access to capital markets and more importantly access to newer western oil and gas technology and prevented western oil and gas companies from doing business with the Russians.
The question then becomes "What additional sanctions can actually be imposed on Russia if it invades The Ukraine?"
Right now they do not have access to western technlogy WRT to oil and gas production or expertise from western companies except indirectly through their agreements with China so there is very little available in terms of further sanctions in this regard.
Russia is currently frozen out of many Western capital markets but not all of them and so there may be some additional sanctions in this area but again the Chinese are more than willing and able to fill this breech to gain leverage over the Russians.
So the big thing left in practical terms is to limit the sale of Russian oil and natural gas. But in practical terms is this actially a realistic option?
Russia produces about 10 million barrels of oil a day. About 1.5 -2 million barrels a day is shipped to China through recently built pipelines. The rest basically goes to Europe with Germany and the Netherlands the primary customers.
Forgetting about Nordstream and the other natural gas pipelines from Russia to Europe, if the West imposed an oil embargo on Russian oil, where would Europe get its oil??, especially if Russia invaded The Ukraine this winter. Eight million barrels a day would be impossible to replace. OPEC is struggling to even maintain production at current quota levels. US oil production has declined somewhat but even if it was somehow ramped up, we are talking at most a million barrels a day. Canada is in the same situation. Mexico and Venezuela are a mess.
Further, The West is suffering under a ramp up of inflation and a longer term spike oil prices would make that problem larger and could trigger a major recession in the West.
When one looks at all this from a practical point of view, it is unlikely that any new sanctions on Russia would entail an oil embargo. A big clue is that Biden talks about devastating new sanctions on Russia if they invade The Ukraine but is very short on specifics as to what the US can actually do. As well, in his news conference, he basically said in response to a question that if Russia stops in the Donbass, the US won't do anything and as I mentioned before, IMO, it is highly unlikely that Russia would attempt to invade all of The Ukraine for a whole bunch of reasons.
So what is likely to happen if Russia invades The Ukraine?
1.....there could be a short term spike in oil and gas prices which will present a short term trading opportunity
2....some further restrictions on Russian access to capital market but little more which would be hard to trade off it from an investment point of view
In sum - a tempest in a teapot.
Hope this helps...