Putin's War Pushing Russia To Insolvency -- April 10, 2022

Later: ruble falls sharply as Russia relaxes controls. Reuters.

• question not asked: why did Russia relax controls?

Original Post

On April 6, 2022, I suggested that indications were such that Russia's economy would implode this summer. 

I'm not exactly sure what metric one uses to determine whether a country's economy implodes or not, but a "first external default in a century" is probably as good a metric as any.

Russia’s first external default in a century now looks all but inevitable after another brutal week for the country’s finances.

First, the Treasury halted dollar debt payments from Russia’s accounts in U.S. banks, ramping up its restrictions on the country. Then, when an attempted hard-currency payment was blocked, Russia breached the terms on two bonds by paying investors rubles instead of dollars.

That pushed the countdown clock a step closer to default. It’s been ticking since Russia invaded Ukraine in February, and the U.S. and others swiped back with a clampdown on banks, companies and oligarchs. A freeze on the central bank’s foreign reserves unplugged Russia from the global financial system, making it the world’s most-sanctioned nation in a matter of days.

In addition, things have gotten so bad for Russia that its finance ministry calls for a new banking system organized by BRICS: Brazil, Russia, India, China, and South Africa. 

Excuse me while I wipe the coffee that just blew out my nose. 

Russia, hit by Western sanctions, has called on the BRICS group of emerging economies to extend the use of national currencies and integrate payment systems, the finance ministry said on Saturday.

Sanctions have cut Russia off from the global financial system and from nearly half of its gold and foreign exchange reserves, which stood at $606.5 billion in early April.

On Friday, Finance Minister Anton Siluanov told a ministerial meeting with BRICS, which consists of Brazil, Russia, India, China and South Africa, that the global economic situation had worsened substantially due to the sanctions, the ministry's statement said.

At least I was reminded that "BRICS" exists and what it stands for. I haven't seen that acronym in years. 

And, of course, China and others are calling bankers around the world to declare the yuan the world's new reserve currency. 

Excuse me again.

But look at that: $606.5 billion in gold and foreign exchange reserves.

Saudi Arabia has about $415 billion foreign currency reserves; I don't know if that includes gold, but probably not. At this link, some estimate total reserves (includes gold, current US dollars) is around $475billion.

With Saudi "struggling" financially to defend itself against Yemeni "terrorists," one can only imagine how much money Putin's War is costing the Russians. 

This, from Reuters, might give us some idea of how much this is costing the Russians, "Russia increases its emergency spending fund by $3.5 billion."

Russia Production Under Sanctions -- April 10, 2022

Of the two metrics, Russian oil production and/or Russian crude oil exports, I think the first is more important, possibly more accurate, and a better reflection of sanctions placed on Russia.

The second metric, Russian oil exports will be difficult to sort out. There will be a lot of cheating and a lot of "propaganda" regarding Russia's exports. Russian exports will be highly suspect. 

On the other hand, Russian oil production data should be more accurate, even if questionable. 

Some argue that western technology is necessary if Russia wants to maximize its production. Sanctions will have a huge effect on Russia's ability to produce. 

So, we'll see. 

From April 7, 2022, Charles Kennedy: "In early April, Russia sees steepest oil production decline since May, 2020."

• first week of April, 2022, production fell 4.5% compared to the March average
• the steepest decline in output since May, 2020
• Russia pumped the equivalent of 10.52 million bopd
• represents 500,000 bopd below the average Russian production for the whole month of March;
• Russia's production in March had already declined from February, albeit by a small margin
• the decline in March, though small, was the first such drop since August, 2021
• a Russian oil pipeline operator will cap the intake of yet-to-be-sold crude oil because of full storage

No mention of Russia's reliance on western technology.

Distillate Stocks In Storage -- US -- Two-Yeear Lookback -- April 10, 2022

Smarter folks than I might want to weigh in on these two charts.

For me, it's all about the quality of oil.

What US refiners need: heavy oil from Canada. 

Unfortunately, the Keystone XL what would have carried that heavy oil from Canada was canceled by President Biden on the first day in office. 

August 5, 2020:

April 3, 2022:

Idle Rambling -- Sunday Morning -- April 10, 2022

Putin's War: at some point we were going to start seeing signs of the financial debacle for Russia caused by Putin. Each week the war continues will set back Russia one year economically. 

Putin's War: western Europe should be incredibly ashamed of how they have responded to this invasion. It's hard to blame the US. The latter can only provide military and humanitarian aid to the extent the Europeans "allow." To do more would require an administration that could quietly goad -- behind the scenes -- a more vigorous response by the Europeans. The US will provide everything the Europeans request, but the Europeans need to request.

China Covid: obviously no one outside Beijing really knows what is going on. 

Apparently upwards of 200 million Chinese citizens are in lock down. For comparison, the US population is 330 million. The Chinese lock down appears to be centered around Shanghai. 

China has lifted the shutdown in the industrial center near Hong Kong. Considering China is somewhat homogeneous culturally -- one can argue that -- and exists under a dictatorship, I find it inexplicable that Shanghai would be that much different than the rest of China when it comes to a pandemic.

One of two explanations for the lock down:

• they really do have a public health problem (I doubt it)
• this is simply political, nothing else, and not related to public health (have we seen this before in the western world?)

If China truly has a public health problem (which I doubt), it speaks volumes for how the west has handled the same situation. It also suggests, perhaps, the efficacy of the Sinopec vaccine compared to others around the world.

Oil: never has tracking the price of Brent and WTI been more fascinating. 

Folks appear to be evenly divided on where "this" goes next. I think American demand for "all" products -- energy, consumer, housing, food, everything -- is much more elastic than economists think. And, unlike the rest of the world, the US has "spare capacity" everywhere.

Freight market slowdown: off the radar scope until the beginning of the last week. I first noticed it with UNP. Throughout the entire week, UNP kept falling. This next week we will start to see a lot of stories with regard to the freight market slowdown. I think it caught folks by surprise. It certainly caught me by surprise. The business headlines certainly did not raise any red flags. 

Watching a train wreck: the Masters for one most famous player.  

Investing: the rest of the day, most of the blogging will be about investing. Wells coming off the confidential list this next week and initial production for theses wells has also been posted. I still have to complete the top stories of the past week.

Natural Gas Fill Rate -- Reverses? -- April 10, 2022

I haven't posted this chart in ages. I used to track it / post it weekly, but once I had "it figured out," I lost interest. 

Recently I've come across numerous tweets suggesting that the US natural gas fill rate has reversed, so I was curious. 

So, the most recent EIA natural gas storage report:  

This is just one of several metrics regarding natural gas. My hunch is that the industry can respond quickly to US natural gas demand, and again no one really knows how much natural gas the US needs to keep in storage at any point in time. Obviously, price makes a huge difference. Contracts. 

The chart above covers only a couple of years with a five-year max/min shaded iin. 

This chart goes back more than ten years. If we only had this chart without anything else, where we "stand today" seems completely within "the norms." Storage has been lower in the past and hit a record low back in 2014.

It will be interesting if we drop below the "five-year minimum."