Millions of consumers and industries could stand to win after the world’s biggest natural gas exporter agreed to match prices in central and eastern Europe with markets in the west. As part of an accord to settle a seven-year-old antitrust case with European regulators, Gazprom agreed to remove restrictions on pipeline flows, and give customers the right to resell, swap and check their rates against markets in the Netherlands and Germany.
The agreement brings customers in the east more in line with the conditions western utilities from RWE to Eni have sought from Gazprom through negotiations or via the courts.
“I expect to see lower gas prices in southeast Europe as Gazprom brings them closer to those paid by the buyers in western Europe,” said Elchin Mammadov, a utilities analyst at Bloomberg Intelligence in London.
The settlement will speed up the transformation of how Gazprom runs its business in Europe, said Simone Tagliapietra, analyst at the Bruegel think-tank in Brussels. “Gazprom is aware that the European gas market is changing,” she said. “They are simply adapting to the new market conditions.”
The agreement is more effective than immediately slapping Russia’s state-run export monopoly with a fine because it includes binding pledges to enable the free flow of gas at competitive prices in Central and Eastern Europe, the European Commission said on Thursday.
“These obligations will significantly change the way Gazprom operates in central and eastern Europe to the benefit of millions of European consumers when they heat their houses, when they cook their food and to the benefit of European businesses who rely on gas for their production,” EU Competition Commissioner Margrethe Vestager told reporters in Brussels on Thursday.
Because of Gazprom’s “monopolistic” position in eastern Europe, it’s those nations that will benefit the most from the agreement and help cut prices, said Geoffroy Hureau, the secretary-general of Cedigaz, a Paris-based industry research group. Meanwhile, the company’s biggest client in Europe is just happy that the case is coming to an end.
“These things dragged on for too long – they are a burden to discussions on other topics,” Uniper’s chief executive officer Klaus Schaefer said in an interview in St Petersburg. “Therefore to get clarity on this in due course is important.”
Uniper was spun off from EON SE two years ago. EON was among the first utilities to seek more flexible terms from Gazprom back in 2009. The financial crisis had damped demand for the fuel and made market rates, which utilities use to sell the fuel to their own clients, cheaper than fuel from Gazprom.
The settlement comes as Russia faces UK accusations it poisoned a double agent that sparked the largest collective expulsion of Russian intelligence officers. Still, a thaw in relations with Europe – an opportunity for rapprochement – came this month when the US pulled out of the Iran nuclear deal, angering other world powers. The EU’s antitrust case has been a thorn in Gazprom’s side since regulators conducted raids in 2011. But geopolitics crept into the antitrust case from the start after Russian President Vladimir Putin signed a decree in 2012 that gave the government the right to protect Gazprom from EU inquiries, but the commission stuck with its case.
Customers that bought gas originally for delivery to Hungary, Poland or Slovakia, can choose to have Gazprom deliver all or part of it to Bulgaria or the Baltic States instead and vice versa against a fee, the EU said.
But despite the outlook for better deals in the region, Poland’s Deputy Foreign Minister Konrad Szymanski told state newswire PAP he was disappointed that there were no penalties or compensation for years of higher prices than their western competitors. Lithuania doesn’t rule out appealing the decision of the European Commission not to fine Gazprom, Interfax reported, citing Prime Minister Saulius Skvernelis. “I know that some would have liked to see us fine Gazprom instead, no matter the solution on the table,” Vestager told reporters. “But a fine would not have achieved all of our competition objectives.” The Commissioner also underlined that if Gazprom breaks any of these obligations, it can impose a fine of as much as 10% of the company’s worldwide sales, without having to prove an infringement of EU antitrust rules. The EU obligations will be in place for eight years. “It is the enforcement of the Gazprom obligations that begins today,” Vestager said.
Deputy chief executive officer Alexander Medvedev said that Gazprom is “satisfied” with the settlement.
“We were always committed to cooperate in good faith in order to find a constructive, mutually acceptable solution in accordance with the established procedure,” he said in a statement.
“We believe that today’s decision is the most reasonable outcome for the well-functioning of the entire European gas market.”

•  Hedge funds cut Brent wagers by most since June 2017
•  Saudi Arabia signals OPEC and allies may boost production

Money managers’ reluctance to get behind the oil rally is finally paying off.

Hedge funds trimmed their net-long position — the difference between bets on a price increase and wagers on a drop — in Brent crude by the most in almost a year. The cuts came as the global benchmark capped its first weekly drop since early April, sliding below $80 a barrel after Saudi Arabia and Russia said OPEC and its allies may boost oil output in the second half of the year.

“Traders thought that the market was in the process of topping out,” John Kilduff, a partner at Again Capital LLC, a New York-based hedge fund, said by telephone Friday. Oil prices had a “swift reaction today to the musings by OPEC to potentially add more supply to the market. We will be very headline-driven over the next few weeks.”

Oil retreated from the highest prices in almost four years as Russian and Saudi energy ministers signaled that the coalition led by the Organization of Petroleum Exporting Countries may gradually raise oil production to assuage consumer anxiety about higher prices. Their comments mark a major shift in strategy for the historic alliance forged in 2016 to erase a global crude glut.

“I think in the near future there will be time to release supply” smoothly to avoid shocking the market, Saudi Energy Minister Khalid Al-Falih said at the St. Petersburg International Economic Forum in Russia. When OPEC, Russia and other major producers meet in June “we will do what is necessary” to reassure buyers, the minister said.

He spoke after talks with his Russian counterpart Alexander Novak, who said the output boost would start in the third quarter, if it’s approved by other members of the group. Both men said the size of the increase was still subject to negotiation.

Hedge funds lowered their Brent net-long position by 8.6 percent in the week ended May 22 to 501,634 contracts, according to ICE Futures Europe data on futures and options released Friday. That was the biggest decline since June 2017.

Money managers’ net-long position in West Texas Intermediate crude fell by 2 percent to 377,520 futures and options, the lowest since November, according to U.S. Commodity Futures Trading Commission released Friday. Longs slipped less than 0.1 percent, while shorts climbed 23 percent, the biggest jump since April.

“You want to get out of the long positions if you are expecting that OPEC is going to increase production,” James Williams, president of London, Arkansas-based energy researcher WTRG Economics, said by phone. “It makes perfect sense for the folks that are long to say, ‘How much longer can this thing continue to grow?’”

Disruption Threat

Crude had rallied earlier this month on the dual threat of supply disruptions from Iran and Venezuela, which together account for about 14 percent of OPEC’s production. Still, the coalition is weighing the possibility of easing output limits at a time when drillers are pumping record amounts of crude from American shale basins.

“The market kind of overextended itself, ” Gene McGillian, manager of market research for Tradition Energy in Stamford, Connecticut, said by phone. “With the Saudis now saying they’re limiting their production cuts and geopolitical risk already priced in, there is going to be some uncertainty.”

A dearth of pipelines in West Texas’ Permian Basin, the most prolific U.S. oil play, is leaving supplies trapped in the region. That’s expanding the nation’s surplus of the fuel as American production tops 10 million barrels a day.

U.S. inventories climbed by 5.78 million barrels to about 438 million barrels in the week ended May 18, data from the Energy Information Administration showed. That was a surprise increase compared with the 2 million-barrel decline predicted in a Bloomberg survey.

But analysts and traders predict that stockpiles may decline in the coming weeks, bolstering prices. Data provider Genscape Inc. was said to report that inventories fell by about 475,000 barrels between May 18 and May 22 at the key pipeline hub in Cushing, Oklahoma.

Oil prices have “been extremely extended for a long period of time,” Kyle Cooper, a consultant at brokerage Ion Energy Group LLC, said by phone Friday. The “EIA report was bearish with a nearly 6 million-barrel build in total petroleum. The more important thing is how that was followed up today with OPEC and Russia regarding the possibility of removing some of those supply constraints.”

•  Easing output curbs “on the table”; no decision yet: Al-Falih
•  OPEC, allies to discuss loosening supply caps in June: Novak

Saudi Arabia and Russia, the oil producers who led the effort to shrink a global glut, said they are discussing easing output curbs for the first time.30

While scaling back the supply caps is “on the table,” no decision has been made, Saudi Arabian Energy Minister Khalid Al-Falih said in an interview early Friday morning in St. Petersburg. The Organization of Petroleum Exporting Countries and its partners will in June discuss loosening the curbs that began in 2017, Russian counterpart Alexander Novak said at the same interview after a meeting between the two officials.

Speculation is swirling over when and by how much the producers will scale back cuts after they eliminated an inventory surplus that had sparked a price crash about four years ago. Market uncertainty has risen following renewed U.S. sanctions on Iran that may curb the Islamic Republic’s exports, and as economic turmoil in Venezuela drives a collapse of the OPEC member’s oil industry. Crude’s rebound is also spurring concern that demand may falter.

Russia and Saudi Arabia share a common view on “consuming countries’ anxiety and concerns over potential supply shortages,” Al-Falih said. “We will ensure that the market remains in its trajectory towards rebalancing, but at the same time we will not overcorrect.” The two nations will meet at least two more times before OPEC and its partners gather in Vienna next month, he said.

While Saudi Arabia has shown a desire for higher prices to bankroll domestic economic reforms and underpin the valuation of its state oil company in a planned initial public offering, the top OPEC member and its allies are facing pressure from consuming nations as well as crude producing companies.

High Enough
Indian Petroleum Minister Dharmendra Pradhan said earlier this month that he expressed concern about rising crude and its impact on consumers to Al-Falih. He added that the Saudi energy minister had assured him that the Middle East nation and other producers would ensure that adequate supplies are available and that prices remain reasonable. In developing countries from Brazil to the Philippines, drivers are complaining about high fuel costs.

In Russia, some of the largest oil producers called for more flexibility after almost 17 months of output curbs. The cuts have achieved their goal and crude prices near $80 a barrel are high enough, according to the bosses of Lukoil PJSC and Gazprom Neft PJSC. Novak said that he will hold talks with the nation’s crude producers next week or the week after to discuss the deal with OPEC.

“Earlier we said that we will monitor the market situation, now we can say that we are looking into the issue” of a smooth recovery in output to meet growing demand, Novak said in the interview on Friday. He added that he and Al-Falih discussed prices and the market situation, including Venezuelan production and risks related to Iran.

The Saudi minister said he’ll meet Novak again in Moscow on June 14, adding that another meeting between the two is possible before that.

U.S. Supply
In Washington, Democrats are using high gasoline prices, approaching $3 a gallon for the first time since 2014, as a political tool, accusing the White House of not doing enough to shield consumers.

Recent price gains have been driven by American actions such as President Donald Trump’s withdrawal from a 2015 deal between Iran and world powers that had eased sanctions on the Persian Gulf state in exchange for curbs on its nuclear program. Earlier this month, Al-Falih and United Arab Emirates Energy Minister Suhail Al Mazrouei said recent moves in oil prices have been driven by geopolitics and that global supply remains ample.

Additionally, record production in the U.S., which is not part of the deal among global producers to cut output, is a key issue that’s complicating strategy for OPEC and its allies.

Brent crude, the benchmark for more than half the world’s oil, was down 0.4 percent at $78.49 a barrel at 7:31 a.m. in London. Earlier this month, prices had traded above $80 a barrel for the first time since November 2014. U.S. West Texas Intermediate futures were at $70.49 a barrel in New York.

“We will be coordinating closely, monitoring the market almost on a daily basis,” Al-Falih said on Friday. “We’ll consult with other countries. Each of them has a voice and their voices matter to us.”