Today, we explore global energy through the lens of Russia, the world’s largest exporter of oil and gas. And to the west is Europe, which is heavily reliant on Russian gas supplies. According to some estimates, Russia is earning roughly $500 million per day on oil and another $400 million on gas all together.

But gas flows from Russia to Europe were already declining into the Q4 heating season last year. Flows flattened out earlier this year, and are  now ticking downward.

To help us understand the Russia/EU gas market, we turn to Nadia Kazakova, an analyst at Renaissance Energy Advisors (REA). Nadia is an expert in this field with prior roles at JP Morgan and Saxo Bank. She also provides in depth analysis on operating stats from Gazprom, Russia’s majority state-owned energy company.

On this show, we discussed:

• Russia’s importance in the global and EU oil and gas markets
• The buildup of gas fields and a vast pipeline network from Siberia and throughout Eastern Europe
• Gazprom's growing influence on EU gas supply, and its efforts to go downstream to capture additional margin
• The significance of Gazprom's November export cut to the EU, stemming from the Nordstream pipeline debacle
• Supply mix from Norway, Algeria and US LNG
• Expectations for further export reductions from Gazprom, below its annual output target
• The new system of ruble payments – its complexity and implications for sanctions and long-term contracts
• New evidence that Gazprom is already cutting back volumes to non-compliant customers
• Future price stabilization or volatility, and what to monitor going forward

Most price signals have extended into overbought territory, although pullbacks could be temporary over the next quarter. Elsewhere, metals have stabilized and  oversold signals could present buying opportunities. 

Trading performance was positive in Q1, built on the success of Q4. Short palladium and long soybean oil were the  best performing trades, while sharp moves in wheat and oil detracted from overall gains. At times, volatility can lead to frequent or contradictory signals. 

Evidently, returns across commodities are not equal. At times, there is wide divergence between sectors such as oil/gas, agriculture and metals. That means the risk of a core long position can be offset with tactical long/short positions in specific commodities.

​For now, here is our base-case into Q2:

• The copper/gold ratio, a gauge for risk-on/risk-off, is stuck in a resistance range, similar to what occurred in 2017-2018 when market volatility increased.
• WTI Crude Oil broke above a decade-long resistance level at $105/bbl and faces stronger resistance near the 2008 price high at $147/bbl-$150/bbl.
• The recent decline in stocks relative to commodities is starting to stabilize, although failure to hold a decade-long uptrend indicates further downside in the ratio, especially if bond yields continue to rise.

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In the December podcast, we warned that 2022 could resemble 2018 – a year when the Federal Reserve tried to taper, which triggered a mini stock market crash. And now, we start the year with great turbulence. This time, however, a mix of macroeconomic and geopolitical risk emanating from Russia and Ukraine have kept investors on edge.  

And of course, the threat of rising inflation lingers. Supply chain disruptions and record low inventories contributed to a surge in prices. But fighting inflation by raising rates comes at the expense of slowing economic growth. 

To help us unpack these developments, we turn to Lev Borodovsky, the editor of The Daily Shot newsletter. Geopolitics

​Topics discussed:

• Update on the Russia-Ukraine conflict, and its impact on markets
• European energy crisis
• ECB response and inflation expectations
• Commodity price outlook
• Fed policy and inflation/growth
• Expected returns: equities and Treasury hedge

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