Oil markets saw a big sell-off this past week. Brent dropped by nearly $10 / barrel on high interest rates and Wednesday's Department of Energy (EIA) report showing US gasoline consumption collapsing, leading to a panic over the possibility of a global recession. Pencil one in, but probably not yet. US employment remains strong, and both diesel and jet fuel demand in the US are robust. Oil prices merited a reset after nearly three months of secular gains, and while they may retreat a bit more from current levels, Brent and Urals should begin to climb again as sentiment stabilizes.
For the moment, however, Russian oil prices have followed Brent down with a $10 / barrel decline. We estimate Urals closed the week around $70, with hard data available only through Wednesday.
The Urals discount narrowed this week to under $12 / barrel, but the number is probably an artefact resulting from delays in reporting Russian oil prices. Figure a $14 - $16 / barrel discount re-emerging when Brent stabilizes.
The ruble once again fell to more than 100 / USD, closing the week at 100.4 rubles / USD. Investors typically flee to the US dollar during panics, and therefore one should avoid reading too much into the current ruble exchange rate. Assuming capital markets regain their composure, the ruble might crawl back to the 96-98 / USD range over the next week or so.
Overall, the week was marked by panic in markets and chaos in the US Congress, prompting fears of funding gaps for Ukraine. I will refrain from lecturing about funding shortfalls and the Price Cap this week. Instead, I refer my readers to the pace at which Ukrainians are destroying Russian equipment. Assuming Ukraine Defense Ministry numbers are broadly accurate, the Ukrainians are eliminating Russian equipment on an industrial scale with manufacturing-line routine. Today's numbers are all but spectacular and not too far removed from those of the last several months.
