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THE CASE FOR A LOWER PRICE CAP ON RUSSIAN OIL: A leading group of economists is proposing the Russian oil price cap be reduced to $45 per barrel, outlining the theory and evidence that the cap is crimping Vladimir Putin’s war funding while also keeping supply flowing to the global market.
The paper, circulated this week by the National Bureau of Economic Research, argues that the price cap has decreased Russia’s oil surplus, while also keeping extraction and production steady, or even above- average— the ideal scenario envisioned by leaders.
“Depending on its success, the price cap on Russian oil could become a blueprint for future sanctions, as well as international economic and trade policy more generally,” wrote the group, which includes Simon Johnson, the MIT professor who was a top outside proponent for the cap in its early stages last summer.
Why it’s timely: The working paper comes six months after the price cap came into force. Treasury is also taking a victory lap on the cap, and Deputy Secretary Wally Adeyemo is expected to play up its successes and outline next steps tomorrow.
A key insight from the paper – Russia’s supply curve may be downward sloping: If anything, Russia’s oil production has increased since the cap took force, and has not shocked markets or caused the price pain that many leaders had feared. That’s because, outside of oil, Russia has few, if any, alternatives to prop up its economy.
Even though it cannot command a higher price, Russia has little choice but to extract and produce oil at the same or a higher rate than normal to keep revenue flowing. The economists call this the “want cash now” effect.
Accordingly, the authors say lowering the price cap from $60 to $45 per barrel would further dent Russia’s revenue.
But the illegal “shadow fleet” could undercut the cap’s efficacy: The paper warns, though, that the cap may not be effective in the long run if Russia is able to amass enough tankers to ship its oil outside of Western shipping services. Estimates as to the size of Russia’s shadow fleet have varied wildly, with some putting the number as high as 600 ships, and others, as low as 100.
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NORD STREAM PROBE COULD BE COMPLETED BY AUTUMN, SWEDEN SAYS: The Swedish prosecutor leading the country’s probe into the Nord Stream gas pipeline explosions said today that they hope to wrap their investigation sometime in autumn — an update that comes after significant reporting yesterday on an alleged Ukrainian plan to attack the pipelines last June.
According to those reports, the CIA received a memo from Dutch intelligence last June that Ukraine had been planning to attack the pipelines, but that the plan had been canceled. Even so, the CIA was alarmed by the information and contacted Ukraine to reinforce its opposition, and passed along the warning of a potential attack to its counterparts in Germany and Europe.
Asked about the investigation during a local radio interview today, the Swedish prosecutor, Mats Ljungqvist, said: “I do think we may possibly be entering a final phase in this case.”
“I hope that at least this autumn, we can take a stand on a decision on the so-called indictment issue,” he added.
No country has issued blame in the attack, though leaders have all described the explosions as an act of “sabotage.” German, Dutch, and Swedish prosecutors are all investigating the blasts, though none have been completed yet. Read more here.
OIL DEMAND TO PEAK BEFORE DECADE’S END: Global oil demand is slated to peak by the end of the decade, according to a new report from the International Energy Agency, due to major investments in clean energy—particularly in electric vehicles — and after demand rebound in China, which recently lifted its COVID-era restrictions, begins to level out.
In its 2023 medium-term oil market forecast, the Paris-based agency said oil use for transport fuels is expected to decline after 2026, as EV expansion and improving fuel economy reduce consumption. Demand growth from China is forecast to slow markedly from 2024 on, the report said.
“The shift to a clean energy economy is picking up pace, with a peak in global oil demand in sight before the end of this decade as electric vehicles, energy efficiency and other technologies advance,” IEA director Fatih Birol said in a statement. “Oil producers need to pay careful attention to the gathering pace of change and calibrate their investment decisions to ensure an orderly transition.”
SHELL RECOMMITS TO OIL AND GAS: Shell said today that it plans to increase its dividend and recommit to its oil and gas businesses.
“We are investing to provide the secure energy customers need today and for a long time to come, while transforming Shell to win in a low-carbon future” CEO Wael Sawan said in a statement to investors.
The statement reiterated Shell’s aim to become a net-zero-emissions business by 2050, and noted its efforts to eliminate routing flaring of methane by 2025 and its plans to invest $10-$15 billion in biofuels, hydrogen, electric vehicle charging, and carbon capture and storage.
Still, the move represents a further turn by the industry toward further investment in fossil fuels as energy security and price considerations have become more politically salient over the past 18 months.
TEXAS GRID TO BE TESTED BY HOT WEATHER: The ability of the Texas grid to handle hot summer weather will be tested over the next week.
The Electric Reliability Council of Texas yesterday issued a weather watch warning of high temperatures this week and into next. It’s not a request that the public lower their energy use but rather a notice that they should be aware that demand will be high and conditions could change.
ERCOT’s forecast includes the possibility of a peak demand record. Supply is also forecast to meet demand. Currently, the forecast shows demand rising above 81 megawatts Tuesday. Supply at that time is supposed to be around 93 MW.
High temperatures in large swaths of the state are expected to be well over 100 degrees into next week. Combined with the high humidity, heat indexes are forecast to top 115 degrees in South Texas, and up to 110 degrees in Houston.
TO WATCH IN THE HOUSE TODAY – BILLS BLOCKING GAS STOVE BANS: The House is set to finish passing GOP bills to block federal gas stove bans this afternoon, after the measures were delayed by an unrelated revolt by conservatives against leadership.
The lower chamber is also set to pass the REINS Act, which would give Congress the power to prevent the executive branch from implementing major regulations.
GRANHOLM FACING HEAT OVER FINANCIAL DISCLOSURES: Energy Secretary Jennifer Granholm is facing pressure from Republicans over her finances after acknowledging Friday that she does own individual stocks, contrary to her April testimony to the Senate Energy and Natural Resources Committee. She also disclosed that her husband owns shares in Ford.
Read more from the Examiner’s Gabe Kaminsky on the GOP efforts to turn up the heat on Granholm.
The Rundown
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