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Fuel oil trend

Rotterdam: $ 4 higher.
Singapore: $ 5 higher.
US Gulf: $ 2 higher.

Sanctions on Russians, big surprise (Brent: $106.5)

As a response to the whole Crimean story, US and EU have decided to take action…or….at least have a meeting on what kind of sanctions should imposed on various individuals (just not Putin). U.S. President Obama was out saying: "Some might view sanctions as a mere slap on the wrist. I can assure you they are not." Sorry Mr. President but as any 3rd grader can tell you: If you have to say you are tough – well – you're not. The challenge for western countries is that sanctions and verbal muscle flexing have worked quite well for the U.S. for more than half a century – now there's however someone willing to test, on a large scale, whether that is merely hot air.

As to the whole 'Russia is dependent on selling its oil to Europe to keep the economy going', let's have a look at some of the basics. Russia has something the world needs badly: oil, and lots of it. Russia is exporting roughly 7 mbpd. Of that, approx. 3 mbpd goes to Europe. With the opening of the second part of the ESPO pipeline a potential 1.7mbpd could be sold to Asian countries should Europe decide to 'stop buying Russian oil to punish them'. Suddenly finding 3 mbpd of oil somewhere else will a) be nearly impossible for Europe [that would max out Saudi spare capacity and then some] and b) be very expensive. And that Europe should sit in the dark or pay an exorbitant premium to keep the light on (not even considering the fact that it would kill any hope of recovering from the debt crisis) while Russia 'just' diverts part of its oil flow to someone else ought to lower the sanction-drumming.

President Putin is holding a lot of aces and he seems willing to take the punches to get what he wants. The U.S. and Europe are running out of jokers, and after 12 years of war in Iraq and Afghanistan, are not about to risk a fist fight with Russia. The oil market seems largely to have arrived to the conclusion that: Crimea is now Russian, not much anyone can do about it.

Whilst there will be a lot of fuzz around the topic for a long time. A military escalation between Russia and NATO has an absolute minimum chance of happening, but expect a lot of sanctions to be implemented back and forth. Oil price reactions should be subdued but minor spikes in volatility are to be expected (there will likely be other topics that make oil move a whole lot more, but sanctions on Russian individuals/companies is not one of them).

Later today a lot of FED members will speak (Between: 16.45 CET and 23:30 CET). The main topic might be damage control from the slip of tongue chair(wo)man Yellen had in the press conference earlier this week. (Where she basically told the market exactly when the FED expects to start hiking rates).