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European energy melee

   No one thought that in 2022, an energy war from energy exporting countries and energy importing countries will cause many people's lives and even the whole world to fall into chaos.

  On September 6, local time, on the basis of already banning or restricting Russian energy, U.S. Deputy Treasury Secretary Adewale Adeyemo said that a simple mechanism will be used to set a "guidance" cap on the price of Russian oil exports. The “guide price” will be set at $44 a barrel, Adeyemo said. This is Russia's own estimate of the cost of oil. Adeyemo emphasized that the price will not be set below the cost of production in Russia, because the level of 44 dollars can still encourage Russian oil production, avoid excessive rise in oil prices in the market, and limit Russia's recovery from this energy crisis. profit.

  The energy sanctions proposed by the United States against Russia may seem effective at first glance, but in fact, it is a very absurd thing, and it is difficult to achieve the expected effect.

Will the U.S. Energy Sanctions Limit Order on Russia Work?


  As we all know, in the market, the two factors that play a decisive role in commodity prices are undoubtedly supply and demand. In the current market, the one who really has the initiative is actually Russia on the supply side.

  First of all, from the demand side, for the United States and Europe, the biggest impact is inflation. According to public data, in August, the inflation rate in the euro zone reached an annual rate of 9.1%, exceeding market expectations and hitting a new record high. This year, Europe has also experienced a severe drought, with about 47% of the region at risk of drought and another 17% on a more severe alert. Energy problems and dry weather will continue to weigh on commodity prices in the coming months, while inflation shows little sign of easing in the short term, said ING's senior economist for the euro zone. In order to cope with inflation and suppress demand, the European Central Bank has raised interest rates by 50 basis points on July 21 this year, which is the first time in 11 years since the European debt crisis. Moreover, the ECB also ended quantitative easing.

  On the other hand, in the United States, the process of raising interest rates started as early as March this year and began to accelerate in June, July and September. In terms of inflation, in June, the CPI in the United States reached 9.1%, the highest year-on-year increase since November 1981. According to some US media reports, currently, the average American household spends an extra $717 per month. Such high inflation has forced the US Federal Reserve to continuously raise interest rates in response.

  High inflation is not only unbearable for Europeans and Americans, but also for politicians in elected countries. The results of multiple opinion polls by U.S. polling agencies show that Biden’s average approval rating is only 38%, the lowest record for any U.S. president. One of the most important effects of this is the high inflation rate in the United States. European politicians are also facing the same situation. On August 21, the results of a German opinion poll showed that only 25% of the people supported Prime Minister Scholz, but 62% of the people were dissatisfied with him, and only 27% chose to support the government. 65% of the people are dissatisfied with the government, and the main reason is inflation; in France, the support rate of the current president Macron has also dropped to 37%; in the UK, although Boris resigned directly because of personal conduct, but in fact It is closely related to the public grievances generated by high inflation.

  From the perspective of energy supply, Russia, which is in an important position of OPEC (OPEC) +, accounts for 55% of the global oil supply. Although Biden himself and the leaders of some European countries have carried out a "Middle East trip" to lobby to increase oil production, the results of the lobbying have not been satisfactory. Just recently, combined with cooler weather and the shelving of the Iran nuclear deal, the balance of energy prices has tipped again to Russia. Once Russia reduces supply, oil prices will rebound, and the rise and fall of energy prices will further affect the trend of the Russian-Ukrainian conflict.



  Therefore, the US sanctions against Russia calling for the establishment of an energy "price ceiling" may seem to lower the energy price in the international market, but in fact, it is wishful thinking that goes against reality and market logic. From the perspective of the regularity of the balance of supply and demand, the rise and fall of international oil and natural gas prices at this stage mainly depends on the reaction of Russia, an important supplier. The "price limit order" has little practical significance. At the same time, the attitudes of China and India, two important oil importing countries, cannot be ignored. As the largest buyers of Russian oil and natural gas, China and India, as long as they insist on buying or even expanding imports of Russian oil and natural gas, will be difficult for the US to implement price caps. In addition, if OPEC countries choose not to increase production or increase production less, the price limit order will be a dead letter.

  Attracted by the high profits of oil and gas, oil manufacturers and even related investors from all over the world have begun to invest in oil and gas production or purchase oil and gas resources, and some have gradually injected new oil and gas into the market. Among them, Algeria, Libya, Israel, as well as natural gas exporters such as Qatar and Norway in the Middle East, have begun to expand production capacity to seize the market cake; even American shale oil manufacturers, such as Occidental Petroleum and Exxon Mobil, are constantly Increase land production to seize the market. This market force is a more powerful catalyst for lower oil prices than a U.S. price limit order. If oil prices fall in the future, it will not be the effect of the US price limit order, but the balance of supply and demand formed by the high profits of oil and gas.

  Of course, Russia can maintain high oil prices by cutting production and other means. However, for Russia, which is already under economic sanctions, it will definitely make things worse. At the same time, combined with the rapid interest rate hikes by central banks around the world to suppress demand, energy prices in the next few years are likely to fall into a "price war" situation with shrinking demand and excess supply. But that is by no means because of the US "price limit order" against Russia, but the regularity of the balance of supply and demand that plays a decisive role and the speculative nature of the market. Although oil and gas prices have dropped recently, with the arrival of winter in the northern hemisphere, oil and gas prices are expected to remain high in the short term.

  Will Europe repeat the mistakes of "Lehman Brothers"?

  While Western countries led by the United States are constantly suppressing demand by raising interest rates and other means, Europe is facing a "Lehman moment." Not to mention that local European industrial companies, such as Germany's BASF, Mercedes-Benz and other companies, have experienced different degrees of shutdown and reduced production capacity. Even Alcoa also said that its Norwegian aluminum smelter output will be cut by one-third. One; Norsk Hydro ASA also said it plans to close its aluminum smelter in Slovakia at the end of September; SpeiraGmbH plans to cut the capacity of its German smelter in half. In addition to the sluggish real economy, many European energy companies have fallen into a liquidity crisis due to the rapid interest rate hikes by the Federal Reserve and the European Central Bank when overcapacity was cut, requiring emergency loans or shareholder capital injections.

  In the financial field, due to the sharp rise in the prices of natural gas and electricity futures in Europe, the short positions established by European power and energy giants in the futures market suffered heavy losses, requiring huge margin payments, otherwise, they would face the risk of "explosion". The German energy giant Uniper has issued a "distress signal" due to the occasional interruption of gas supply to the Nord Stream 1 pipeline by Gazprom indefinitely. Before the start of the Russian-Ukrainian conflict, 55% of Germany's total natural gas consumption was imported from Russia, and natural gas is an important source of industrial production and power supply in Germany, used in glass, steel, chemicals, food, tobacco, paper, etc. industry. Germany's natural gas consumption is mainly supplied by three companies, namely Uniper (35%), RWE (35%) and VNG (30%). Among them, Uniper is the largest importer of Russian natural gas in Germany and one of the largest utility companies in Europe. When Beixi 2 was forced to stop, the three major manufacturers began to buy natural gas from other channels at high prices. In addition to buying gas from the spot market, Uniper, Germany's largest importer of Russian natural gas, has even started to draw on gas inventories that would have been used for severe winters or other emergencies.
  Uniper has also become the first German energy giant to send a distress signal to the government in this round of gas supply crisis. Will Uniper or other similar European companies become the European "Lehman Brothers" this year or next? As we all know, in 2008, Lehman Brothers, which was originally the fourth largest investment bank in the United States, declared to apply for bankruptcy protection after the negotiation of the acquisition failed due to investment failure in the extremely sensitive and fragile market conditions in Europe and the United States at that time. , triggered a global financial tsunami. Although accidental events cannot be simply analogized, there are often striking similarities in history, as the so-called "under the sun, there is nothing new".
  The realistic environment is that not only the spot prices of oil and natural gas have soared, but also affected by the temporary interruption of natural gas supply in Russia. 281 euros, a sharp increase of 35% from the market price on September 2. In the international market, not only energy companies participate in energy futures, but many companies in other industries, including real companies, pension institutions, and insurance companies, are also active in the futures market, or do hedging to ensure the stability of spot prices. , or to speculate in order to make a profit. In this context, the sharp rise and fall of energy prices will directly lead to the stable European energy futures market jumping up and down, causing European companies that were originally at low interest rates to have huge liquidity risks due to the impact of liquidation, and even the formation of dominoes Domino effect.
  As an alliance composed of 28 countries, the debt problem of the EU member states is already in turmoil. Under the double impact of energy and economy, compared with the financial crisis caused by "Lehman Brothers", will there be a problem? Disintegration, or a new problem.


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