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PRICE CAP TROUBLE? Russian Urals oil prices exceeded the G-7 oil price cap today for the first time ever, as oil prices across the board were pushed higher due to rising demand.
The higher prices for Russia’s flagship Urals-grade crude threatens to cut into the efficacy of the price cap—or the novel effort to cut into Russia’s war revenue and still keep its supply on the market—as oil demand is expected to rise in the second half of the year due to looming supply cuts from Saudi Arabia and Moscow. Combined, the two largest OPEC producers are slated to take 1.5 million bpd off the market beginning in August.
Prices for Urals reached $62.22 per barrel for oil ports in the Baltic Sea, and $63.22 for supplies sent from the Black Sea, according to shipping data—higher than the $60 cap for Russian crude leaders imposed beginning in December. Oil prices across the board have rallied in recent days, with Brent futures rising above $80 per barrel this morning.
The tighter markets could ease the economic strain on Russia that Western leaders had sought in crafting their oil price cap, and it could force them to lower the capped price.
Already, some economists have pushed for a lower cap: Last month, a new paper from prominent economists at MIT and elsewhere concluded that coalition members should lower the price of the cap to $45 per barrel, arguing that all signs thus far have pointed to the idea that Russia’s supply curve may be “downward sloping,” and that they have little choice but to extract and produce oil at the same or a higher rate if prices fall.
But leaders must tread carefully. Too high a cap, and the Kremlin could have excess profits to continue fundings its war machine. But too low, and Russia could be tempted to shut in production and further reduce its shipments.
Or, Russia could enlarge its fleet of illegal “shadow tankers” to ship oil outside the reach of the cap.
Russia already commands a fleet of these off-book cargoes, though estimates as to its size vary widely, ranging from as high as 600 ships to as low as 100.
Earlier this year, Russian oil appeared to be commanding prices of around $74 per barrel, $14 higher than the price cap on Urals shipments, according to invoice data compiled by researchers from the Institute of International Finance, Columbia University, and the University of California.
Treasury response: U.S. Treasury officials, who led the push for the price cap, have insisted it has achieved its dual goals of both cutting into Russia’s oil profits while ensuring it keeps its supply on the market. Speaking to reporters at an event last month, Deputy Treasury Secretary Wally Adeyemo said the cap is showing “clear signs of success,” with its oil trading roughly 25% lower than other global supplies.
“We think that right now we’ve struck the right balance,” he told Breanne. “But we’re open to thinking through what we do going forward — to make what is already an incredibly hard choice for the Kremlin even harder.”
Welcome to Daily on Energy, written by Washington Examiner Energy and Environment Writer Breanne Deppisch (@breanne_dep). Email [email protected] for tips, suggestions, calendar items, and anything else. If a friend sent this to you and you’d like to sign up, click here. If signing up doesn’t work, shoot us an email, and we’ll add you to our list.
TEXAS GRID UNDER THREAT (AGAIN): The Texas power grid shattered demand records yesterday and is forecast to do so again today, according to the state’s grid operator, ERCOT. Demand soared to 81,351 MW around 6 p.m, and is expected to top that again today, with demand forecasts rising to around 83,454 MW.
So far this summer, Texas grid operator ERCOT has forecast power demand to reach record-highs on 13 separate days as a searing heat wave continues to sit over the state, sending temperatures in most of Texas to triple-digit temperatures or higher.
…Meanwhile, temperatures also soared to record highs in other parts of the South and Southwest: Excessive heat warnings have been issued for much of California, southern Nevada, and parts of Arizona and New Mexico. Meanwhile, large swaths of the including Oklahoma and Florida, in addition to Texas, remain under excessive heat warnings or advisories.
Meteorologists have described the heat risk as “extreme,” and forecast that parts of California and Nevada could see record-breaking temperatures, including highs of 130 or more in Death Valley. National Weather Service forecasters in Hanford, the most populous city in California’s San Joaquin Valley, warned online of an “increase in heat-related illnesses, including heat cramps, heat exhaustion and heat stroke.”
FORD EXPECTED TO SEEK MORE EMPLOYEE FLEXIBILITY IN UAW NEGOTIATIONS: Ford is expected to ask United Auto Workers for more flexibility to transition union employees between its EV battery plants and its ICE-powered vehicle factories—a request that threatens to further complicate tough negotiations.
The U.S. automaker is hoping it can be granted the ability to move workers to factories where production is highest, whether that means EV factories or ICE-powered vehicle factories, according to Bloomberg. The current union contract restricts Ford from so-called flex production.
Bigger picture: EV sales have slowed in recent months, with the pace of electric vehicle sales in the U.S. growing by just 50% in the first half of the year, according to data compiled by Motor Intelligence. That’s down from the same period in 2022, when EV sales grew 71%.
UAW President Shawn Fain has accused the companies of engaging in a “race to the bottom” in the EV transitions, and has vowed to go to “war” against the companies. In an early sign of just how fraught the negotiations might be, Fain also refused to grant the CEOs of the three Detroit automakers with the traditional handshake to signal the opening of the negotiations.
“There’s no point in having a big pomp and [circumstance] ceremony where we act like we’re friends, and we’re working together, when we’re not,” said Fain, who is hoping to boost wages and increase job security for union employees.
EV SALES GROWTH SOFTER THAN EXPECTED IN 2023: Global EV sales growth have slowed in recent months for the first time in recent years, marking what analysts from Barclays characterized as a “step back from EV euphoria,” according to MarketWatch.
Global EV growth was tracking at 13.5% through May, falling much lower than the 18% growth that analysts had projected and “likely marking the first time in recent years that EV penetration has disappointed,” they said.
Concerns about U.S. EV sales have also increased, Barclays said, with EV inventory standing at 95,000 vehicles at the end of June. The vehicles with the most amount of inventory were Ford’s Mach-E electric SUV, with 16,000 cars in stock, and VW’s electric SUV, the ID.4, with 14,000 cars in stock.
HOUSE ENERGY AND COMMERCE SUBCOMMITTEE MARKUP HEARING: The House Subcommittee on Environment, Manufacturing, and Critical Materials marked up three bills yesterday aimed at preserving access to gas-powered vehicles, walking back the the administration’s newly proposed tailpipe emissions standards, and slow what Republicans have argued is a “rush to green” agenda that risks national security and would create an outsized dependence on China.
One bill, H.R. 1435, would amend the conditions in which EPA can grant states a waiver for a motor vehicle emissions standard, and require it include a clause that any state directive cannot “directly or indirectly” limit the sale or use of new motor vehicles—preventing laws like the one passed in California, which bans all sales of new gas-powered vehicle by 2035.
Another, H.R. 4468, would prohibit the EPA from finalizing its proposed tailpipe emissions rule, which seeks to raise EV sales targets to 67% by the year 2032.
“We need to pump the brakes on the Biden administration’s policies and regulations that essentially mandate EVs on irresponsible rush-to-green timelines,” House Energy and Commerce Chairwoman Cathy McMorris Rodgers said in opening remarks. “This administration is undermining our national security and taking away choice from American consumers, in what appears to be an attempt to essentially nationalize major sectors of our transportation industry.
RFK ON CLIMATE: Robert F. Kennedy Jr. has interesting positioning on climate policy, for a Democratic presidential candidate.
Of note, Kennedy yesterday promoted a clip of himself in an interview with Jordan Peterson explaining that he takes climate change seriously (he is in fact a long-time environmental legal activist) but that “this crisis is being used as a pretext for clamping down totalitarian controls the same way the covid crisis was.”
He blamed a “cabal” of elites, including the intelligence agencies and the World Economic Forum, of stoking fear over climate change.
“Climate change is being used to control us through fear,” he tweeted. “Freedom and free markets are a much better way to stop pollution.”
Also of note: This New York Post story about an RFK press dinner in New York Tuesday night that was derailed when its host, Doug Dechert, was triggered by a mention of climate change and belligerently denounced the concept as a hoax before using flatulence to underscore the point in an ensuing shouting match. The report says that RFK took in the whole thing impassively.
CLIMATE PROTESTERS DISRUPT CONGRESSIONAL WOMEN’S SOFTBALL GAME: The Congressional Women’s Softball Game came to a halt for 10 to 15 minutes around 7:30 p.m. last night when climate change protesters took over Watkins Recreation Field. They wore white T-shirts that said “End fossil fuels” and linked arms in a circle on the field. U.S. Capitol Police eventually escorted them off.
The Rundown
Bloomberg DeSantis says no thanks to $377 million in us energy funds
Wall Street Journal Canada joins nearly 20 nations calling for halt to deep-sea mining as negotiators meet to agree rules
