Taps Coogan – March 7th, 2023

Dr. Anas Alhajji, creator of Energy Outlook Advisors, recently spoke with Macro Voices‘ Erik Townsend about the oil and gas markets. Dr. Alhajji reiterates his view that short-term fundamentals for oil and gas are relatively bearish as Russian oil and gas production holds up despite sanctions. His outlook turns bullish at the end of the year on the basis of tighter production due to OPEC cuts and rising Chinese demand. The chart-rich discussion doesn’t lend itself to excerpts so enjoy it below.

The only observation I’ll add is this: all of these supply/demand discussions assume that there are no new geopolitical destabilizations.

Russian forces in Ukraine are almost entirely funded by oil and gas and, as energy prices have dropped below pre-war levels, those revenues have fallen sharply. In just the first two months of this year, Russia’s Finance Ministry has reported a budget deficit of 2.58 trillion rubles ($34.19 billion), over six times the budget surplus it ran last year (the largest ever), and an annualized pace of nearly 12% of GDP. While Russian sovereign debt levels are low, external demand for Russian denominated debt is non-existent, making even small deficits structurally dangerous.

Russia is heavily incentivized to find a way to boost oil and gas prices, one way or the other.