Ukraine, Oil, and Gas - Is Russia Really The Bad Guy?

While everyone is criticizing Russia, it’s easy to follow the US ‘savior’ narrative. However, what if we looked at what’s happening with oil and gas in mind?

Disclaimer to today’s article: I’m providing this analysis purely from an energy-focused perspective. I do not claim it represents THE right view, but rather one of those that won’t be as visible in the mainstream. It’s interesting to add different viewpoints to the geopolitical puzzle. I’m looking forward to reading your views and opinions.

First, the Latest…

Several port facilities in Germany, the Netherlands, and Belgium have been the target of cyberattacks, prompting the judicial authorities to investigate suspicions of extortion of funds at the expense of German operators in the oil sector. Indeed, it would appear that this series of computer hackings that began several days ago primarily concerns oil terminals and chemical facilities. This is disrupting deliveries in several major European ports against a backdrop of soaring energy prices. The identity of the attackers has not been made clear.

So, is this Russia’s game and payback for NATO allies increasing troop and weapons deployments to Eastern Europe, and threatening debilitating sanctions?  Reuters reported that US deputy national security advisor Anne Neuberger said that Russia could use cyberattacks to destabilise Ukraine, and that “Kyiv believes a hacker group linked to intelligence in Belarus, a close ally of Russia, carried out the cyberattack using malware similar to that used by a group tied to Russian intelligence.” It’s fair to say that Russia will not only use such methods against Ukraine but will also directly target real-world critical infrastructure in Europe and elsewhere.

Getting back to soaring energy prices. Crude jumped last Thursday (Feb. 3) and Friday, thanks to the strengthening of the euro against the US dollar induced by European Central Bank (ECB) President Christine Lagarde. Consequently, the fall in the greenback came on top of the recovery in demand, the fall in US crude inventories and the disruptions in supply to boost the price of the black gold on the climb. The two crude benchmarks rose above the psychological mark of $90 a barrel, galvanized by solid demand and tensions on the offer coming from geo-political risks. On Monday (Feb. 7), prices remained above the $90 mark.

Who is Provoking Who?

The situation is rather complex on the geopolitical scene, with the US claiming that Russia is planning an invasion in Ukraine, whereas the US under NATO cover sent additional troops to Eastern Europe. The question that should be asked here is: who is provoking who? So far, we haven’t seen Russia placing troops in Mexico, on the border with the US, or deploying missiles in Latin America. On the other hand, it can be argued that it looks like the Biden administration may have a hard time accepting that the Kremlin can agree to various partnerships with its European neighbors, especially regarding more favorable energy supplies. Instead, it’s in the US interest to weaken those diplomatic relations, potentially leading to additional partnerships that may arise between the EU and Putin.

And as we see the US-led narrative dominating Western media with more aggressive, suspicious, and tense tones towards Russia, this obviously has had the effect of pouring some more oil on the Russian-Ukrainian fire. Furthermore, the US needs reasons to demonstrate that NATO is still alive and relevant, while a number of countries are now questioning their own participation in the US-led military organisation created in 1949, even going so far as to show some doubts regarding its current motivations.

Isolating the Russian Bear

By maintaining a hostile tone towards Russia’s intentions, the US is consequently trying to isolate the Russian bear and push their European partners to blindly follow the “official narrative” (as the EU being part of NATO), which could possibly lead to new sanctions on Russia, the latter being able to retaliate by using its energy assets and capacities to deprive the EU of Russian supplies. Russian gas currently represents between 30% and 40% of total gas imports for Europe. As a result, the Americans could start exporting more gas into Europe via Liquefied Natural Gas (LNG) shipping – which again could benefit their energy-led commercial balance – the Europeans thus becoming the losing players in this game.

Last week it was announced that a tanker loaded with LNG from the US will arrive at the LNG terminal in Świnoujście (Poland) at the end of this month, since Poland has LNG import capabilities which could be used to deliver US gas to Ukraine. Apparently, this is the second time (after the first one took place two years ago) that such gas deliveries are made by PGNiG, the Polish state-controlled oil and gas company, in cooperation with ERU (their strategic trading partner on the Ukrainian market).

Actually, Ukraine suspended imports of Russian gas at the end of 2015. After relying on Russian gas imports for decades, the country increasingly depends on imports from Europe. Since Ukraine has no LNG import capabilities, such US gas deliveries have been organized via a pipeline from the Polish terminal (through re-gasified LNG).

WTI Crude Oil (CLH22) Futures (March contract, daily chart)

Brent Crude Oil (BRJH22) Futures (April contract, daily chart)

RBOB Gasoline (RBH22) Futures (March contract, daily chart)

Henry Hub Natural Gas (NGG22) Futures (February contract, daily chart)

Sebastien Bischeri, Oil & Gas Trading Strategist

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The information above represents analyses and opinions of Sebastien Bischeri, & Sunshine Profits' associates only. As such, it may prove wrong and be subject to change without notice. At the time of writing, we base our opinions and analyses on facts and data sourced from respective essays and their authors. Although formed on top of careful research and reputably accurate sources, Sebastien Bischeri and his associates cannot guarantee the reported data's accuracy and thoroughness. The opinions published above neither recommend nor offer any securities transaction. Mr. Bischeri is not a Registered Securities Advisor. By reading Sebastien Bischeri’s reports you fully agree that he will not be held responsible or liable for any decisions you make regarding any information provided in these reports. Investing, trading and speculation in any financial markets may involve high risk of loss. Sebastien Bischeri, Sunshine Profits' employees, affiliates as well as their family members may have a short or long position in any securities, including those mentioned in any of the reports or essays, and may make additional purchases and/or sales of those securities without notice.