Month: August 2022

Beijing has issued its response to anti-China hawk Sen. Marsha Blackburn visiting Taiwan on Thursday and Friday. It began with at least 35 PLA jets buzzing the island’s airspace on Friday, including 8 Chinese Navy vessels patrolling off the island.

And on Saturday Fox News correspondent Lucas Thomlinson reported “China sends four nuclear-capable bombers near Taiwan Saturday one day after Sen. Marsha Blackburn met Taiwan’s president in Taipei.”

Further, Taiwan’s defense ministry said it monitored a total of 21 PLA aircraft and five PLA Navy vessels near the island. This was part of the ongoing message and fallout going back to Nancy Pelosi’s Aug.2 visit. 

As for Sen. Blackburn, she led the fourth US delegation to Taiwan for the month of August alone, strongly signaling Washington is not backing down even after in the days after the controversial Pelosi visit China launched its largest live fire drills surrounding Taiwan in recent history.

On Friday morning Blackburn had said “Xi Jinping doesn’t scare me” – also while referring to Taiwan as a “country” in a meeting with Taiwan’s president Tsai Ing-wen:

“I will never kowtow to the Chinese Communist Party,” she said in one. “I will continue to stand with the (Taiwanese) and their right to freedom and democracy. Xi Jinping doesn’t scare me.”

The White House has accused Beijing of using the early August Pelosi visit to manufacture a crisis. Chinese state media had at the same time expressly stated the PLA drills were a “rehearsal” for forced reunification. For now, it looks like these Congressional delegations, in some instances led by some of the most outspoken anti-China hawks, will continue unabated. 

Two Chinas? @MarshaBlackburn calls Taiwan an ‘independent nation’ in visit to island https://t.co/6L9oX0301W

— Fox News (@FoxNews) August 27, 2022

Sen. Blackburn (R-TN) had arrived Thursday in Taipei on a US Air Force plane in an unannounced visit. She’s a well-known hawk when it comes to all things China, for example having posted on Twitter in 2020 that “China has a 5,000 year history of cheating and stealing. Some things will never change.” She more recently backed a proposed bill that would let the Biden administration lend weapons to Taiwan, akin to what’s already been authorized for Ukraine.

By Srikanth Sankaran, Head of European ABS Strategy at Morgan Stanley

As this summer of optimism draws to a close, the Fed path and recession fears are returning to the fore. On the corporate front, the message from 2Q earnings was not overwhelmingly negative, but evidence of weakening demand, shifts in consumer spending and inventory pressures for retailers were abundant. The full impact of rate hikes on growth and earnings will become more apparent in the coming quarters, we think.

In framing recession risks through the lens of corporate credit, the High Yield index has often served as a key fear gauge. As a rule of thumb, US HY spreads of 800-850bp are associated with elevated recession fears or a growth scare. Current cash spreads of 450bp are well inside levels that can be seen as stressed, suggesting that recession risks are still not adequately priced in. However, taking into account the favorable mix shift in the HY index, we believe that the fair spread level in a mild recession is ~700bp this time around.

What’s changed?

• First, the HY market today is more exposed than ever to higher-quality issuers. BB rated bonds account for more than half of the benchmark HY index – 7 points higher than in the years immediately preceding Covid and more than 10 points above the post-GFC window from 2010-12.

• Second, the concentration of secured bonds stands at a record high – 27% of the US HY market by par. They are safer than typical unsecured bonds, with better recovery rates (55% versus 40%) in the extreme event of a default.

• Third, we see no clear “problem sector” – an axis of weakness along which credit could crack. While HY no doubt has its share of problem credits, the stresses this time around are more dispersed, and muted refinancing pressures should temper the escalation from idiosyncratic defaults to sectoral/systematic pressures.

• Finally, cash prices of HY bonds were hit hard by the rates moves earlier this year, before growth concerns took center stage. For context, the current HY index cash price of 90 is nearly 10 points lower than the pre-Covid window (January-February 2020), even though spreads are comparable. Low prices reduce investors’ gross exposure in the event of a default, hence are associated with lower loss severity through a default cycle. This feature alone could account for half of the 100bp spread reduction in the recession threshold.

The canary in today’s credit coal mine could well be leveraged loans, a less “macro” but equally important part of the credit market. At US$1.4 trillion in outstanding volume, the loan market has nearly doubled in size since 2015, with a significant deterioration in quality. Due to the floating-rate nature of these instruments, underlying borrowers are particularly vulnerable to the double whammy of weaker earnings and rising interest rates.

A downgrade wave is imminent, extending through the next few quarters. Historically, the loan index has breached 750bp in spread and an 85 cash price only in the depths of the GFC and Covid. This time around, we expect these levels to be tested even in a mild recession, signaling significant downside from current levels (480bp in spread; 95 cash price). Our conclusion: HY credit spreads may be less sensitive to a growth slowdown than in the past, but the loan market is fundamentally more vulnerable. Both canaries are singing for now. But given current valuations, we maintain a cautious stance across corporate credit – staying up in quality and up in seniority.

These credit-centric considerations have broader implications.

• First, limited excesses and measured near-term refinancing pressures indicate that corporate defaults may not exacerbate economic stresses during the growth slowdown phase. This argues for a potential recession to be of the milder variety…for now.

• Second, investors looking to take advantage of under-priced recession fears in credit should account for the index quality improvement when sizing credit hedges and strikes. For context, a 700bp target on cash HY spreads would push the index price to Covid lows of 80. Loans, for their part, are not the most amenable to bearish expressions or hedging. While hedging through total return swaps is feasible, liquidity in these instruments is limited.

• Third, a majority of loan borrowers are unlisted companies, so the transmission of stresses into public equity markets is likely to be indirect.

In sum, the credit market has a new canary, but monetizing it directly could pose a challenge.

For those waiting in anticipation of a sudden central bank reversal on interest rate hikes or full capitulation and a return to stimulus, you might be holding your breath a while longer.  

A host of central banking heads from around the world delivered a unified message of hawkish intent on Saturday at the Kansas City Fed’s annual retreat in the Grand Teton National Park in Wyoming.  The heads of the Bank of England, Swiss National Bank, Bank of Japan, Bank of Korea and several European Central Bank policy makers delivered remarks that sought to unequivocally commit to raising interest rates until inflation meaningfully slows. 

This trend follows statements made by Fed Chairman Jerome Powell on Friday which have led 60% of market investors to place bets on another rate hike of 75 basis points in September. 

The continued hawkish tone of central bankers flies in the face of previous predictions by many economists that rate hikes and balance sheet cuts would be short lived and that bankers would seek to avoid market turmoil at all costs.  This has not been the case, and while considerable attention has been on the Federal Reserve, other central bank policy makers including those at the ECB are also calling for 75 bps rate hikes in September.

The rate hike conundrum is widely understood among alternative economists but rarely discussed in the mainstream.  Central banks have engaged in a non-stop program of QE, stimulus measures and near zero interest rates for well over a decade since the credit crash of 2008.  Now, stock market, bond markets and many other elements of the global economy are addicted to easy money derived from central bank fiat.  Without the printer and digital money creation running non-stop, there is no lifeline for massively indebted corporations, nor will there be cheap overnight loans to support corporate stock buybacks.

These policies have kept many nations and stock markets on financial life support for years, but they have also created the detrimental price inflation the public is now suffering under today.  Thus, a Catch-22 scenario has been engineered – If the central banks cut off the easy money and raise interest rates, corporations will lose their lifeline, stock buybacks will plunge, markets will fall and unemployment will rise.  If the central banks continue with stimulus and low rates, inflation will only climb higher.  

So far it would seem that central bankers are choosing market instability and job losses over more inflation and they have given no indication they plan to reverse course for months to come.  

Authored by Lance Roberts via The Epoch Times,

The “Rule Of 20” says the “bear market” may just be resting despite much commentary to the contrary. In a recent Investing.com article, Bank of America strategist Savita Subramanian warned clients that stocks are still expensive despite this year’s drawdown.

“Our analysis of the ERP indicates a 20% likelihood of a recession is now priced in vs. 36% in June. In March, stocks priced in a 75% probability of recession. Even on Enterprise Value to Sales, where sales should be elevated by the tailwind of 9% CPI, the market multiple is excessively elevated (+40%) relative to history – possibly because real sales growth ex-Energy is essentially flat.”

Such is a critically important point due to the massive influx of capital in recent years.

“There’s a global glut of liquidity, minimal interest in traditional investments, little apparent concern about risk, and skimpy prospective returns everywhere. Thus, investors are readily accepting significant risk in the form of heightened leverage, untested derivatives and weak deal structures.  The current cycle isn’t unusual in its form, only its extent.”

– Howard Marks, Oaktree Capital Management

With the Federal Reserve reversing that monetary accommodation, such poses a very significant, and likely unrealized, risk to investors. Such brings us to the Rule Of 20, which suggests the stock market is substantially overvalued, as BofA noted.

“Outside of inflation falling to 0%, or the S&P 500 falling to 2500, an earnings surprise of 50% would be required to satisfy the Rule of 20, while consensus is forecasting an aggressive and we think unachievable 8% growth rate in 2023 already.”

– BofA

Unfortunately, the last time the Rule Of 20 was overvalued was in 2007. That was when Howard Marks wrote that passage above. In other words, while things always seem different, they are almost always the same.

What Is The Rule Of 20?

The Rule of 20 helps us think about valuations and bull and bear markets. To calculate the Rule Of 20 we combine the P/E ratio and inflation rate. Over the years, markets have shown a distinct tendency to revert to a sum of 20 for these two metrics.

The value of the markets is fair when the sum of the P/E ratio and the inflation rate equals 20.

P/E + Inflation = 20

The stock market is undervalued when the sum is below 20 and overvalued when the sum is above 20.

This seemingly simplified insight is nonetheless surprisingly effective, as noted by Evercore ISI for the Rule of 20.

• Markets rarely trade at equilibrium, so it’s no surprise that the Rule of 20 is seldom precise.

• The combined P/E ratio and inflation rate have ranged from a low of 14 to a high of 34.

• Over the last 50 years, the average P/E is just below 16, the average inflation rate is 4 percent, and the average sum of P/E and inflation, as expected, is close to 20.

The rule peaked at the 2nd highest level in history earlier this year. Such levels suggest the market is more than “fully priced.” Regardless of what definition you choose to use.

Source: St. Louis Federal Reserve, Refinitive Chart: RealInvestmentAdvice.com

As Howard Marks noted, the math suggests forward 10-year returns will be substantially lower than the last.

Source: St. Louis Federal Reserve Chart: RealInvestmentAdvice.com

In a market where momentum drives an ever smaller group of participants, fundamentals become displaced by emotional biases.

If This Is A Bear Market, We Have More To Go

As I noted in “Don’t Fight The Fed,” David Einhorn once discussed the problem with valuations concerning the market in 2008.

“The bulls explain that traditional valuation metrics no longer apply to certain stocks. The longs are confident that everyone else who holds these stocks understands the dynamic and won’t sell either. With holders reluctant to sell, the stocks can only go up – seemingly to infinity and beyond. We have seen this before.”

Such is the problem that investors face today.

With the Rule Of 20 very elevated, the Fed reversing monetary accommodation, and inflation and wages impacting earnings and margins, the risk of a further bear market decline is not entirely unreasonable.

As monetary policy becomes more restrictive and high inflation erodes economic growth, the market will have to reprice for lower sales, margins, and earnings. As such, if we are indeed in a bear market and not just a correction, then we have more work to do.

Source: St. Louis Federal Reserve, Refinitive Chart: RealInvestmentAdvice.com

Even the 1974 Bear Market, where the Fed was hiking rates to fight high inflation, suggests the same.

Source: St. Louis Federal Reserve, Refinitive Chart: RealInvestmentAdvice.com

Currently, with investor complacency surging and equity allocations still near record levels, no one sees a severe market retracement as a possibility. But maybe that should be warning enough.

With the Rule Of 20 elevated, the risk of lower returns is significant. Such is particularly evident due to the “pull forward” of returns over the last decade due to repeated global Central Bank interventions.

Source: Refinitiv Chart by: RealInvestmentAdvice.com

The outsized returns, above the rate of economic growth, are unsustainable. Therefore, unless the Federal Reverse remains committed to a never-ending program of zero interest rates and quantitative easing, the eventual reversion of returns to their long-term means is inevitable.

Such will result in profit margins and earnings returning to levels that align with actual economic activity.

“Profit margins are probably the most mean-reverting series in finance. And if profit margins do not mean-revert, then something has gone badly wrong with capitalism.”

– Jeremy Grantham

The only question is when the markets begin to realize it.

Several weeks ago we reported that amid Europe’s mindblowing gas and electricity prices, Deutsche Bank predicted that a growing number of German households will be using firewood for heating, a forecast which appears to have become self-fulfilling as German google searches for firewood (“brennholz”) had since exploded off the charts:

But while Germans are still “searching” merely in the virtual realm, for countless Poles the search is all too real.

According to Reuters, with Poland still basking in the late summer heat, hundreds of cars and trucks have already lined up at the Lubelski Wegiel Bogdanka coal mine, as householders fearful of winter shortages wait for days and nights to stock up on heating fuel ahead of the coming cold winter in queues reminiscent of communist times.

Artur, 57, a pensioner, drove up from Swidnik, some 30 km (18 miles) from the mine in eastern Poland on Tuesday, hoping to buy several tonnes of coal for himself and his family.

“Toilets were put up today, but there’s no running water,” he said, after three nights of sleeping in his small red hatchback in a crawling queue of trucks, tractors towing trailers and private cars. “This is beyond imagination, people are sleeping in their cars. I remember the communist times but it didn’t cross my mind that we could return to something even worse.”

In Poland, where coal is king, dozens are lining up at the Lubelski Wegiel Bogdanka coal mine, waiting for days and nights to stock up on heating fuel. Read more: https://t.co/jVGwSEfLam pic.twitter.com/zZV3vtzEQk

— Reuters Business (@ReutersBiz) August 27, 2022

Artur’s household is one of the nearly 4 million in Poland that rely on coal for heating (granted, these households are probably in better shape than the ones relying on nat gas whose price is rising by 10-20% every day and is now almost literally in the stratosphere) and now face shortages and price hikes, after Poland and the European Union imposed an embargo on Russian coal following Moscow’s invasion of Ukraine in February. Poland banned purchases with an immediate effect in April, while the bloc mandated fading them out by August.

While Poland produces over 50 million tonnes from its own mines every year, imported coal, much of it from Russia, is a household staple because of competitive prices and the fact that Russian coal is sold in lumps more suitable for home use.

Soaring demand has forced Bogdanka and other state-controlled mines to ration sales or offer the fuel to individual buyers via online platforms, in limited amounts. Artur, who did not want to give his full name, said he had collected paperwork from his extended family in the hope of picking up all their fuel allocations at once.

The mine planned to sell fuel for some 250 households on Friday and would continue sales over the weekend to cut waiting times, Dorota Choma, a spokeswoman for the Bogdanka mine told Reuters.  The limits are in place to prevent hoarding and profiteering on the black market, or even selling spots in the queue, Choma said.

Like all Polish coal mines, Bogdanka typically sells most of the coal it produces to power plants. Last year, it sold less than 1% of its output to individual clients so lacks the logistics to sell fuel directly to retail buyers.

Lukasz Horbacz, head of the Polish Coal Merchant Chamber of Commerce, said the decline in Russian imports began in January when Moscow started using rail tracks for military transport.

“But the main reason for the shortages is the embargo that went into immediate effect. It turned the market upside down,” he told Reuters. A spokesman for the Weglokoks, a state-owned coal trader tasked by the government to boost imports from other countries declined to comment, while the climate ministry was not available for comment. Government officials have repeatedly said Poland would have enough fuel to meet demand.

In recent years, Poland has been the most vocal critic of EU climate policy set by a petulant Scandinavian teenager, and a staunch defender of coal that generates as much as 80% of its electricity. But coal output has steadily declined as the cost of mining at deeper levels increases. Coal consumption has held mostly steady, prompting a gradual rise in imports. In 2021, Poland imported 12 million tonnes of coal, of which 8 million tonnes came from Russia and used by households and small heating plants.

In July, Poland ordered two state-controlled companies to import several million tons of the fuel from other sources including Indonesia, Colombia and Africa, and introduced subsidies for homeowners facing a doubling or tripling of coal prices from last winter.

“As much as 60% of those that use coal for heating may be affected by energy poverty,” Horbacz said.

Back at Bogdanka, Piotr Maciejewski, 61, a local farmer who joined the queue on Tuesday, said he was prepared for a long wait. “My tractor stays in line, I’m going home to get some sleep,” he said.

Authored by Eva Fu and Steve Lance via The Epoch Times (emphasis ours),

Rep. Marjorie Taylor Greene (R-Ga.) was sound asleep in her Floyd County home when the doorbell and knocks on her front door woke her up. There were flashlights and people outside her bedroom window.

Quickly, she jumped out of bed, got dressed, and walked to the front door. By instinct, she reached for her gun, although something told her to put it down.

The decision to not take her gun may have saved her life.

At her front porch were five police officers with their guns ready. They told the confused congresswoman that they were responding to a report of a fatal shooting at her house—a man shot five times in a bathtub, with a woman and children still in the residence—indicating violence could escalate.

“I think you got swatted,” the police told Greene after they realized what was happening. Swatting, the act of using prank calls to send tactical police to the victim’s home, is a federal crime and has previously led to serious consequences.

“So what that is is someone wanted to get me killed,” Greene said on “Capitol Report,” a program on The Epoch Times’ sister outlet NTD. “They wanted to send the police to my house, into a situation where they thought there was murder happening, in hopes the police would kill me or someone else in my home.”

The incident, which occurred in the early hours of Aug. 24, would mark the first of two successive swatting attempts in 26 hours targeting Greene over her stance on transgender issues.

In the first prank call, the caller claimed to be from a Virginia crisis line. After the police responded to the report, the suspect called back using a computer-generated voice, saying they were connected with a website called “kiwifarm.net,” a site that supports cyberstalking, according to the police report shared with The Epoch Times. The person said they were upset about Greene’s position on “trans-gender youth’s rights.”

Greene a week earlier had proposed a legislation called the “Protect Children’s Innocence Act,” which would make it a class C felony for anyone to knowingly perform medical treatment on a minor meant to alter their biological sex. The penalty under her bill is 10 to 25 years in prison with a maximum fine of $250,000.

Speaking about her bill on Thursday morning, the lawmaker appeared unflinching. “We need to protect kids and allow them to grow up before they make these life-altering decisions that can never be undone,” Greene said.

A second fake shooting call came the following day just before 3 a.m. In the call, made through an internet chat, a person claiming to be Wayne Greene said they “came out as transgender,” had shot their family members, and threatened to turn the gun on themself, according to a. Aug. 25 police report.

“If anyone tries to stop me from shooting myself, I will shoot them,” said the caller, who warned that “they would be waiting for us,” the report stated.

Two officers went to Greene’s home and alerted her to the situation at her front door.

The police couldn’t determine the caller’s location due to the person using a VPN, a tool that encrypts a user’s internet history, according to the report.

Greene expressed gratitude for the local law enforcement’s handling of the incidents.

“They are on the ball, and they definitely know what’s happening now,” she said, adding that she has deep trust in the local officers and feels “very safe” with them.

Read more here…

A wave of European ammonia-plant shutdowns due to soaring natural gas prices has resulted in a devastating fertilizer crunch, worsening by the week, with as much as 70% of production offline.  

“Ammonia prices, though volatile, rose 15% in 3Q and could climb higher as Europe’s record gas prices curtail output and send ammonia producers to the global market in search of replacement supplies to run upgrade facilities — with winter still around the corner,” Bloomberg Intelligence’s Alexis Maxwell wrote in a note. 

As of Friday, 70% of capacity is offline across the continent, according to Fertilizers Europe, representing top regional producers. 

“The current crisis begs for a swift and decisive action from EU and national policymakers for both energy and fertilizer market,” Jacob Hansen, director general of Fertilizers Europe, said in a statement.

Producers from Norway’s Yara International ASA to CF Industries to Borealis AG recently reduced or halted production because European NatGas prices hit a record high of 343 euros per megawatt hour, making it uneconomical to operate. 

“We confirm we are reducing and stopping production of some fertilizer plants in the different EU sites and this for economic reasons,” a spokesperson for Borealis AG said. 

Europe’s benchmark NatGas price soared nearly a third this week as Russian supplies to Europe via Nord Stream 1 pipeline have been reduced to 20% over the summer and face a temporary halt on Aug. 31 for three days. 

The region’s fertilizer industry association warned the energy crisis is rippling across many industries and could heavily impact the food industry. 

“We are extremely concerned that as prices of natural gas keep increasing, more plants in Europe will be forced to close.

“This will switch the EU from being a key exporter to an importer, putting more pressure on fertilizer prices and consequently affecting the next planting season,” said Maximo Torero, chief economist at the United Nations Food and Agriculture Organization.

The closure of fertilizer producers across Europe lifted Mosaic and CF Industries as some of the top advancers in the S&P 500 Index on Friday, rising 16% and 15%, respectively, on the week. 

Bloomberg Intelligence’s Maxwell said “cascading supply-side shocks” could keep fertilizer prices elevated well into 1H23 and may pressure farmers in the upcoming growing season, adding to even more food inflation as less fertilizer equals smaller harvests. 

Remember, the world’s largest fertilizer company warned supply disruptions could extend into 2023. 

The picture is becoming more apparent that Europe’s energy crisis and much of its fertilizer capacity offline will have severe consequences for the food industry in the growing season ahead — leaving some to believe a global food crisis is only just materializing. 

By Cyril Widdershoven of Oilprice.com

After months of increased Russian crude oil and petroleum product volumes heading to Asian customers, mainly China and India, Russian oil is now facing stiff competition. The first signs of a potential reversal of Moscow’s luck in Asia are showing as media reports that Russian crude oil volumes to India have fallen for the first time since March (the start of the Russian invasion of Ukraine). Indian refiners are reported to have lifted more term supplies from Russia’s main rival, Saudi Arabia, as Aramco’s price setting strategy has made its crude more attractive as Russian prices increased due to robust demand. The growth of India’s crude oil imports from the Kingdom in July came at the same time that Saudi Arabia increased its supplies. Industry reports showed that India imported 877,400 bpd of oil from Russia in July, a decrease of 7.3% compared to June. For India, Iraq is still the largest supplier, and Russia is second. 

India, the world’s 3rd largest oil importer and consumer, imported 3.2% less oil in July than a month earlier. Total volumes in July were reported to be around 4.63 million bpd. The main reason given for the decline is planned refinery maintenance in August. Reports also stated that Saudi Arabia supplied 824,700 bpd (25.6%) in July, which is the highest level in three months. A possible driver behind this change is that Aramco lowered the official selling price (OSP) of its oil in June and July. Most of the Indian refiners have term contracts with Saudi Arabia so they can adjust volumes slightly but they cannot cut drastically. 

India’s total crude oil import volumes from the Middle East declined slightly last month. The main country hit was Iraq, which saw its volumes cut by 9.3% in July, bringing Iraqi export volumes below the 1 million bpd mark for the first time in 10 months.  Until now, Russia still holds strong, mainly due to Indian demand for Russian ESPO grades (diesel rich), putting pressure on West African producers at the same time.  

In the coming months, all eyes will be on India as international pressure builds on Delhi to change its pro-Russian oil policies. The Biden Administration has been very deliberate in its approach, putting pressure on Delhi to minimize its import of Russian oil and petroleum products. European countries seem to be following Washington’s lead, trying to coax India away from its addiction to Russian oil. The first reactions from the Indian government, however, would suggest there is no real inclination to comply with this pressure as most politicians are worried about high energy and food bills. 

Recurring reports that Russian crude and petroleum products bought by India are finding their way to Western markets have been causing a stir. Western politicians, especially in NW Europe, will have to confront India on these issues if they don’t want it to become a domestic problem. As the Petrologistics graph above shows, Russian-Indian oil is still reaching Western markets. 

Meanwhile, Saudi Arabia is slowly getting into the swing producer game in Asia. While the Kingdom hasn’t shown any real determination to aggressively regain market share in Asia, Riyadh is always eager to beat a competitor. By increasing its official production volumes in June by 218,000 bpd to hit a level of 8.79 million bpd, the Kingdom is slowly putting pressure on others. On a year-on-year assessment, Saudi Arabia’s oil exports increased by 20.1% or by 1.47 million bpd in June 2022. Month-on-month, Saudi crude exports increased by 146,000 bpd to 7.2 million bpd in June. The total increase doesn’t mean a full-scale production increase, as Saudi Arabia’s oil inventory (crude oil and products) dropped by 1.01 million bpd in June, although that is a relatively minor dropped compared to the 234.7 million barrels that remain. 

In the coming months, markets will be watching not only India’s oil import strategies and China’s economic market conditions but also a possible internal OPEC+ market share conflict. While Riyadh and Moscow are still very much allies, internal differences and opportunities to cut into the opponent’s market share are appearing. The impact of the latest EU oil sanctions may be slow, but it will force Russian oil volumes to already constrained markets. Possible Western sanctions on 3rd parties, especially India and possibly China, would open up even more opportunities for the Kingdom. Whether Aramco or its compatriot ADNOC will take advantage of such a move remains unclear, but the world’s swing producer still has some oil production to play with. In contrast to Moscow, the financial reserves of Saudi Arabia are filled to the brim, giving it some space to play with OSPs if needed.