The resiliency of Russian oil exports indicates that the price cap is working as intended, preventing a surge in oil prices from the European embargo while complicating Moscow’s ability to make top dollar on its exports.
Russia’s oil industry, the lifeblood of its economy, still faces stiff challenges. Chief among them is the large discount it offers on its crude to lure buyers. Another round of sanctions will hit vital exports of refined fuels such as diesel next month.

Crudeoilptarticol

Russia is on track to export 158 million barrels of crude by sea this month, according to commodities-data firm Kpler. That would be one of the top five months on record but is partly a rebound from a drop in shipments after the sanctions took effect in December.
The availability of tankers isn’t posing a problem, Russian shipping executives said. Corporate structures in which individual tankers are owned by distinct shell companies are common in the shipping industry.
The U.S. designed the sanctions so Western and Japanese insurance clubs—associations that provide coverage against accidents such as oil spills—would underwrite tankers.
Other ships carrying Moscow’s oil are doing so outside the mechanism specified by the cap. More than 75 loadings of Russian crude from Dec. 5 through Jan. 14 were onto tankers that lacked insurance from Western and Japanese clubs, which dominate shipping insurance, insurance data show.

USOil W1 01 30 2023 2052

Germany GDP

The German economy will grow this year and might even avoid a shallow recession in the short term, the government said on Wednesday, the latest sign of brightening growth prospects in Europe despite the shock of Russia’s invasion of Ukraine.

Europe’s largest economy is likely to expand by 0.2% this year, the German Economy Ministry said Wednesday in its annual economic report, revising up an autumn forecast for a 0.4% contraction.
“We aren’t through yet but we managed to avoid the worst scenarios,” German Economy Minister Robert Habeck said, recalling that some scenarios saw a possible 12% contraction in output following Russia’s attack on Ukraine and the energy crunch it caused.
Germany’s large export-oriented manufacturers have kept production steady in recent months, defying predictions of a sharp decline, and now stand to benefit from the economic reopening in China, Germany’s largest trading partner. Mounting confidence about the year ahead helped send a closely watched business sentiment index to its highest level since last summer on Wednesday.
A resurgent euro and a likely slowdown in economies such as the U.S. looks set to sap demand for the country’s exports. Industrial orders have weakened since the start of 2022. German exports to countries outside the EU declined by almost 10% in December from the previous month, according to its federal statistics agency.

Still, while a crisis may have been averted, Germany faces significant economic headwinds that suggest a lengthy period of low growth is likely. 

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Commodity prices — and especially crude oil  will hinge on China’s reopening after Lunar New Year celebrations later this month, according to Goldman Sachs Group Inc. 

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“What is the best reopening play? It is oil,” Jeff Currie, the bank’s global head of commodities research said in a Bloomberg Television interview Wednesday. “What is idled? Planes, trains and automobiles. You turn them all back on, that’s going to be a big pop in oil demand.”

A barrel of Brent oil could reach $110 by the third quarter if China and other Asian economies fully reopen from coronavirus restrictions, Currie said. Futures are trading above $82 a barrel on Wednesday.

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APP has learned that institutional investors have turned bullish on the yen for the first time since June 2021, as market speculation heats up about the Bank of Japan’s future exit from its ultra-loose monetary policy.

The latest data from the U.S. Commodity Futures Trading Commission (CFTC) showed asset managers’ net positions in the yen turned positive in the week ended Jan. 17. The news came ahead of the Bank of Japan’s latest policy meeting. At the meeting, the Bank of Japan stood by its stimulus framework, fighting off bets that a change was imminent. 

USDJPY D1 01 24 2023 1108

The Bank of Japan released the minutes of its monetary policy meeting in December last year, showing that many members believed that it is important to continue to ease monetary policy. If necessary, we will not hesitate to step up the easing policy. Some members said the BOJ must clearly explain that widening the yield band is not aimed at exiting its ultra-loose policy.

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Economists at Goldman Sachs no longer predict a euro-zone recession after the economy proved more resilient at the end of 2022, natural gas prices fell sharply and China abandoned Covid-19 restrictions earlier than anticipated.

Gross domestic product is now expected to increase 0.6% this year, compared with an earlier forecast for a contraction of 0.1%. While growth will still be weak during the winter due to the energy crisis, the first quarter of 2023 will likely see expansion of 0.1%, according to economists led by Jari Stehn. They also see inflation easing faster than thought — to about 3.25% by end-2023.

eurozonegrowthGoldman

“We also look for core inflation to slow due to cooling goods prices but see continued upward pressure on services inflation due to rising labor costs,” they said. “Given more resilient activity, sticky core inflation and hawkish commentary, we expect the European Central Bank to tighten significantly more in coming months.”

Goldman reiterated its call for half-point increases in interest rates at the ECB’s February and March meetings, followed by a final quarter-point step in May to take the deposit rate to 3.25%.

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