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‘The pain will go on’

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Ray Dalio, Bridgewater Associates, Founder, Co-Chairman & Co-CIO, at the WEF in Davos, Switzerland on May 24th, 2022.

Adam Galica | CNBC

Billionaire investor Ray Dalio is right to have bet against European stocks, and global markets still have a rough road ahead, according to Beat Wittmann, partner at Zurich-based Porta Advisors.

Dalio’s Bridgewater Associates has at least $6.7 billion in short positions against European stocks, according to data group Breakout Point, which aggregated the firm’s public disclosures. It is unknown whether Bridgewater’s shorts are outright bets against the stocks, or part of a hedge.

The Connecticut-based fund’s 22 short targets in Europe include a $1 billion bet against Dutch semiconductor equipment supplier ASML Holding, $705 million against France’s TotalEnergies and $646 million against French drugmaker Sanofi, according to the Breakout Point data. Other big names also shorted by the firm include Santander, Bayer, AXA, ING Groep and Allianz.

“I think he’s on the right side of the story, and it’s quite interesting to see what strategies have performed best this year,” Porta’s Wittmann told CNBC on Friday.

“It’s basically the trend-following quantitative strategies, which performed very strongly – no surprise – and interestingly the short-long strategies have been pretty disastrous, and of course, needless to say that long-only has been the worst, so I think right now he is on the right side of this investment strategy.”

The pan-European Stoxx 600 index is down more than 16% year-to-date, although it hasn’t quite suffered the same degree of pain as Wall Street so far.

However, Europe’s proximity to the conflict in Ukraine and associated energy crisis, along with the global macroeconomic challenges of high inflation and supply chain issues, has led many analysts to downgrade their outlooks on the continent.

“The fact that all these shorts appeared within few days indicates index-related activity. In fact, all of shorted companies belong to the STOXX Europe 50 Index,” said Breakout Point Founder Ivan Cosovic.

“If this is indeed the STOXX Europe 50 Index-related strategy, that would imply that other index’s components are also shorted but are currently under disclosure threshold of 0.5%. It is unknown to us to which extent these disclosures may be an outright short bet, and to which extent a hedge against certain exposure.”

Dalio’s firm is generally bearish on the global economy and has already positioned itself against sell-offs in U.S. Treasuries, U.S. equities and both U.S. and European corporate bonds.

‘I don’t think we are close to any bottom’

Despite what was shaping up to be a slight relief rally on Friday, Wittmann agreed that the picture for stock markets globally could get worse before it gets better.

“I don’t think we are close to any bottom in the overall indexes and we cannot compare the average downturns of the last 40 years, when we had basically a disinflationary trend since the [Paul] Volcker time,” he said.

Volcker was chair of the U.S. Federal Reserve between 1979 and 1987, and enacted steep interest rate rises widely credited with ending high inflation that had persisted through the 1970s and early 1980s, though sending unemployment soaring to almost 11% in 1981.

“We have a real complex macro situation now, unhinged inflation rates, and if you just look at the fact in the U.S. market that we have the long Treasury below 3.5%, unemployment below 4%, inflation rates above 8% — real interest rates have hardly moved,” Wittmann added.

“If you look at risk indicators like the volatility index, credit spreads, default rates, they’re not even halfway gone where they should be in order to form a proper bear market bottom, so there’s a lot of deleveraging still to go on.”

Many loss-making technology stocks, “meme stocks” and cryptocurrencies have sold off sharply since central banks began their hawkish pivot to get a grip on inflation, but Wittmann said there is more to come for the broader market.

“A lot of the heat is being addressed right now, but the key indicator here I still think is high yield debt spreads and default rates, and they have simply not reached territory which is at any stage here interesting to invest in, so the pain will go on for quite a while.”

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World

Business Losses From Russia Top $59 Billion as Sanctions Hit

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Global companies have racked up more than $59 billion in losses from their Russian operations, with more financial pain to come as sanctions hit the economy and sales and shutdowns continue, according to a review of public statements and securities filings.

Almost 1,000 Western businesses have pledged to exit or cut back operations in Russia, following its invasion of Ukraine, according to Yale researchers.

Many are reassessing the reported value of those Russian businesses, as a weakening local economy and a lack of willing buyers render once-valuable assets worthless. Companies under U.S. and international reporting standards have to take impairment charges, or write-downs, when the value of an asset declines.

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The write-downs to date span a range of industries, from banks and brewers to manufacturers, retailers, restaurants and shipping companies—even a wind-turbine maker and a forestry firm. The fast-food giant

McDonald’s Corp.

expects to record an accounting charge of $1.2 billion to $1.4 billion after agreeing to sell its Russian restaurants to a local licensee;

Exxon Mobil Corp.

took a $3.4 billion charge after halting operations at an oil and gas project in Russia’s Far East; Budweiser brewer

Anheuser-Busch InBev SA

took a $1.1 billion charge after deciding to sell its stake in a Russian joint venture.

“This round of impairments is not the end of it,” said Carla Nunes, a managing director at the risk-consulting firm Kroll LLC. “As the crisis continues, we could see more financial fallout, including indirect impact from the conflict.”

The financial fallout of the conflict isn’t significant for most multinationals, in part because of the relatively small size of the Russian economy. Fewer than 50 companies account for most of the $59 billion tally. Even for those, the Russian losses are typically a relatively small part of their overall finances. McDonald’s, for example, said its Russia and Ukraine businesses represented less than 3% of its operating income last year.

Some companies are writing off assets stranded in Russia. The Irish aircraft leasing company

AerCap Holdings

NV last month took an accounting charge of $2.7 billion, which included writing off the value of more than 100 of its planes that are stuck in the country. The aircraft were leased to Russian airlines. Other leasing companies are taking similar hits.

Other businesses are assuming that they will realize no money from their Russian operations, even before they have finalized exit plans. The British oil major

BP

PLC’s $25.5 billion accounting charge on its Russian holdings last month included writing off $13.5 billion of shares in the oil producer

Rosneft.

The company hasn’t said how or when it plans to divest its Russian assets.

BP’s $25.5 billion accounting charge on its Russian holdings include writing off $13.5 billion of shares in oil producer Rosneft.



Photo:

Yuri Kochetkov/EPA/Shutterstock

Even some companies that are retaining a presence in Russia are writing down assets. The French energy giant

TotalEnergies

SE took a $4.1 billion charge in April on the value of its natural-gas reserves, citing the impact of Western sanctions targeting Russia.

The Securities and Exchange Commission last month told companies that they have to disclose Russian-related losses clearly, and that they shouldn’t adjust revenue to add back the estimated income that has been lost because of Russia.

Bank of New York Mellon Corp.

, which in March said it had stopped new banking business in Russia, appeared to breach this guidance when it reported its results for the first three months of this year. The New York custody bank in April reported $4 billion in revenue under one measure that included $88 million added to reflect income lost because of Russia.

A BNY Mellon spokesman declined to comment.

Investors appear to have mixed reactions to the write-downs, partly because most multinationals have relatively small Russian exposure, academic research suggests.

Financial markets are “rewarding companies for leaving Russia,” a recent study by Yale School of Management found. The share-price gains for companies pulling out have “far surpassed the cost of one-time impairments for companies that have written down the value of their Russian assets,” the researchers concluded.

Bank of New York Mellon said earlier this year that it had stopped new banking business in Russia.



Photo:

Gabriela Bhaskar/Bloomberg News

Research using a different methodology found a more subtle investor reaction. Analysis by Indiana University professor Vivek Astvansh and his co-authors of the short-term market impact of more than 200 corporate announcements revealed a marked trans-Atlantic divide. Investors punished U.S. companies for pulling out of Russia, and non-American companies for not withdrawing, the analysis found.

More write-downs and other Russia-related accounting charges are expected in the coming months, as companies complete their planned departures from the country.

British American Tobacco

PLC, whose brands include Rothmans and Lucky Strike, said on March 11 it had “initiated the process to rapidly transfer our Russian business.” That transfer is still ongoing, according to a BAT spokeswoman. BAT hasn’t taken an impairment in relation to the business.

Accounting specialist

Jack Ciesielski

said companies might hold off announcing a write-down until they have a good handle on how big the loss will be.

“You don’t want to put a number out there until you’re confident that it’s not likely to change,” said Mr. Ciesielski, owner of investment research firm R.G. Associates Inc.

The ruble’s recovery is helping Russia prop up its economy and continue its Ukraine war effort. WSJ’s Dion Rabouin explains how Russia boosted its ailing currency and how it is affecting the global economy. Illustration: Ryan Trefes

Many companies are giving investors rough estimates about what to expect on Russia-related losses.

The manufacturer

ITT Inc.,

which has suspended its operations in Russia, said last month it expects a $60 million to $85 million hit to revenue this year because of a “significant reduction in sales” in the country. That is a small slice of the $2.8 billion in total revenue for the maker of specialty components for the auto, aerospace and energy industries.

As sanctions weaken the Russian economy, businesses still operating there are reassessing their future earnings and booking losses. Ride-sharing giant

Uber Technologies Inc.

in May took a $182 million impairment on the value of its stake in a Russian taxi joint-venture because of forecasts of a protracted recession in the Russian economy. Uber said in February it was looking for opportunities to accelerate its planned sale of the stake.

—Thomas Gryta and Nick Kostov contributed to this article.

Write to Jean Eaglesham at jean.eaglesham@wsj.com

Copyright ©2022 Dow Jones & Company, Inc. All Rights Reserved. 87990cbe856818d5eddac44c7b1cdeb8

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Business

Highest quarterly profit since 2008 on strong oil prices

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Shell posted adjusted earnings of $9.1 billion for the first quarter of 2022.

Ben Stansall | Afp | Getty Images

LONDON — Oil giant Shell on Thursday reported its highest quarterly profit since 2008 on soaring commodity prices, fueling calls for a one-off windfall tax on oil and gas companies to help U.K. households with spiraling energy bills.

Shell posted adjusted earnings of $9.1 billion for the three months through to the end of March, in line with expectations of analysts polled by Refinitiv. That compared with $3.2 billion over the same period a year earlier and $6.4 billion for the fourth quarter of 2021.

The company also announced plans to increase its dividend by around 4% to $0.25 per share for the first quarter.

Of the firm’s $8.5 billion share buyback program announced for the first half of the year, Shell said $4 billion had been completed to date. The remaining $4.5 billion share buybacks are scheduled to be completed before the announcement of second-quarter earnings.

Shell’s results echo bumper profits seen across the oil and gas industry, even as many energy majors incur costly write-downs from exiting Russia.

U.K. rival BP on Tuesday announced plans to boost share buybacks after first-quarter net profit jumped to its highest level in more than a decade. France’s TotalEnergies, Norway’s Equinor and U.S. oil giants Chevron and Exxon Mobil also reported strong first-quarter profits on soaring commodity prices.

Shell confirmed it had taken $3.9 billion of post-tax charges in the first quarter as a result of its exit from Russia. The company had previously warned it could write off between $4 billion and $5 billion in the value of its assets after pulling out of the country. The firm said these charges were not expected to impact adjusted earnings.

“The war in Ukraine is first and foremost a human tragedy, but it has also caused significant disruption to global energy markets and has shown that secure, reliable and affordable energy simply cannot be taken for granted,” CEO Ben van Beurden said in a statement.

“The impacts of this uncertainty and the higher cost that comes with it are being felt far and wide. We have been engaging with governments, our customers and suppliers to work through the challenging implications and provide support and solutions where we can.”

Shell reported a sharp upswing in full-year profit in 2021 on rebounding oil and gas prices.

Shares of the company have jumped more than 36% year-to-date.

‘Obscene’ profits

Union groups and environmental campaigners have labeled record profits for U.K. fossil fuel companies as “obscene” at a time when many consumers are grappling with surging energy costs.

Opposition lawmakers have repeatedly called on Prime Minister Boris Johnson’s government to impose higher taxes on oil and gas companies to help struggling families.

Finance Minister Rishi Sunak has suggested such a policy may be possible if oil and gas companies do not properly reinvest profits. Johnson, however, has rejected fresh calls for a windfall tax, saying it will discourage investment and keep oil prices high over the long term.

Meanwhile, the European Union on Wednesday said it plans to ban Russian oil imports within six months and refined products by the end of the year in its latest round of economic sanctions. The bloc’s proposed measures reflect the widespread anger at Russian President Vladimir Putin’s unprovoked onslaught in Ukraine.

Oil prices jumped on the news, adding to these gains on Thursday morning.

International benchmark Brent crude futures traded at $110.9 in London, up almost 0.7% for the session, while U.S. West Texas Intermediate futures stood at $108.4, roughly 0.5% higher.

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Oil could vault as high as $150 a barrel, veteran analyst warns

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Some pumpjacks operate while others stand idle in the Belridge oil field on November 03, 2021 near McKittrick, California.

Mario Tama | Getty Images

Oil prices are soaring and nothing appears to be stopping their ascent. December to January saw international benchmark Brent crude climb by roughly $11 a barrel, and it’s gone up nearly the same amount since the start of February, underpinned by supply concerns, rising inflation and geopolitical tensions.

Brent surpassing $100 a barrel is almost a given at this point, energy analysts say; but now, an increasing number of forecasters predict the commodity surpassing $125 a barrel and even higher. 

“Given that you’ve got this underinvestment in capital exploration, we’re running low on physical oil, we’re running short of supply,” John Driscoll, director of JTD Energy Services, told CNBC on Monday. “There is a scenario where we could vault past $120, even as high as $150” a barrel. 

Brent crude crossed $95 a barrel in the last week, its highest level since the summer of 2014 and a 63% increase year-on-year. It was trading at $93.98 per barrel on Wednesday at 10:20 a.m. in London. 

Tensions over the threat of a Russian invasion into Ukraine have also helped to push prices up, though a partial drawdown of Russian troops from Ukraine’s border areas on Tuesday led the commodity’s price to retreat about 3% from the previous day. While Moscow has rejected the assumption of an impending invasion, NATO leaders and U.S. President Joe Biden insist that the risk of war remains high. 

But it’s “not only the geopolitical tailwinds that we’re picking up, but the fundamentals,” Driscoll said. 

“The market is in what we call a steep backwardation which gives a premium to any prompt physical available oil. We’re starting to sense that demand is on its way to recovering, and we’re looking at supply shortfalls,” he explained. 

Those shortfalls exist both in terms of OPEC+ production — the alliance of OPEC and several non-OPEC countries — pumping oil below the levels it promised to add to markets, and sector underinvestment in the U.S. and other countries in the wake of Covid-19 and governments’ pushes to switch to renewables. 

OPEC+ members with quotas were short of their production targets by 700,000 barrels per day in January, with co-leaders of the group Saudi Arabia and Russia also pumping below their quotas, according to S&P Global Platts. This comes despite pledging to gradually unwind record supply cuts.

Investors ‘piling into oil markets’

These aren’t the only signs of a continued bull run for oil: money is pouring into investments in oil-related stocks, and international oil companies are raking in massive profits. As inflation in the U.S. hits its highest rate in decades, analysts recommend energy stocks as smart investments. That inflation, aided by global supply chain issues, isn’t just hitting the prices at the gas pump but is also pushing up costs for oil drillers themselves, particularly in the U.S. shale patch. Oilfield services companies have said they will pass on their increased costs to producers.  

“As we increase the consumption, our spare capacity drops down, but you also see other key indicators like money managers, the non-commercials, pensions, piling into oil markets,” Driscoll said. “Stellar results from oil equities (like) BP, Shell, Total hitting recent highs.”  

Indeed, the S&P 500 Energy Sector Index is up more than 50% year-on-year.

Driscoll isn’t alone in his bullish call — J.P. Morgan this month forecast oil as “likely to overshoot to $125” per barrel “on widening spare capacity risk premium.”

“Supply misses are rising. Market recognition of strained capacity is also growing,” J.P. Morgan wrote in its Feb. 11 report. 

The Energy Information Administration lowered its OPEC capacity estimates by 300,000 barrels per day in February, and the producer group hasn’t shown any indication that it will deviate from its planned quota increases of 400,000 barrels per day in 2022, despite pleas from the U.S. and others to help lower oil prices. 

“This underperformance comes at a critical juncture – and in our view, as other global producers falter, the combination of underinvestment within OPEC+ nations and post-pandemic rising oil demand (as highlighted by Kolanovic et. al. here) will dovetail to a potential point of energy crisis,” analysts at J.P. Morgan said.

Until demand destruction

These factors along with continued global recovery from the coronavirus-induced economic crash mean there’s very little in the way of prices continuing to shoot up – something that could trigger an economic recession, energy ministers warned at the Egyps Petroleum Conference in Cairo this week. Analysts at RBC Capital Markets believe the only thing that could reverse the price climb is a crash in demand as the commodity’s price outstrips what buyers can afford. 

“We could be early, but the major cornerstone of our thesis over the next year, or longer, assuming the macro economy holds, is that the oil cycle will price higher until it finds a level of demand destruction,” Michael Tran, commodity and digital intelligence strategist at RBC Capital Markets wrote in an analyst note on Monday. “It simply does not get more bullish than that.”

The bank sees oil hitting $115 per barrel or higher this summer. 

“Historically, markets led higher by tightening product and crude inventories are difficult to solve absent a demand destruction event or a supply surge, neither of which appears to be on the horizon,” Tran wrote. 

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Business

Saudi Aramco posts 160% rise in the third quarter profit

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Saudi Aramco logo is pictured at the oil facility in Abqaiq, Saudi Arabia October 12, 2019.

Maxim Shemetov | Reuters

DUBAI, United Arab Emirates — Saudi Arabia’s oil giant Aramco has posted a 158% increase in third quarter net income to $30.4 billion, as the world’s largest oil companies continue to benefit from the reopening of the global economy and soaring oil and gas prices.

The result beat expectations, with analysts expecting a median net income of $29.1 billion for the quarter. Aramco reported net income of $11.8 billion in the third quarter of 2020.

“Our exceptional third quarter performance was a result of increased economic activity in key markets and a rebound in energy demand,” Aramco President and CEO Amin Nasser said on Sunday.

“Some headwinds still exist for the global economy, partly due to supply chain bottlenecks, but we are optimistic that energy demand will remain healthy for the foreseeable future,” Nasser added.

Aramco said the increase in net income was the result of higher crude oil prices and volumes sold, and stronger refining and chemicals margins in the quarter, as the company benefits from rebounding global energy demand and increased economic activity in key markets.

Market windfall

WTI crude oil has soared above $85 in recent weeks, a level not seen since 2014, as the market shifts focus from demand recovery to supply scarcity. Natural gas prices are up around 130% this year, meaning the full extent of the global energy crisis is more likely to be felt in the fourth quarter results.

Aramco declared a significant dividend of $18.8 billion to be paid in the fourth quarter. The payout can be covered by a jump in free cash flow to $28.7 billion in the third quarter, up from $12.4 billion for the same period in 2020. Gearing, a measure of the company’s debt position, also improved to 17.2% from 23% due to higher oil prices and stronger cash flows.

Aramco also said it would “invest for the future” with capital expenditure of $7.6 billion in the third quarter, representing a 19% increase, compared with the same period in 2020. Aramco said it expected 2021 capital expenditure to be approximately $35 billion.

The results confirm a bumper quarter for “Big Oil,” a term used to refer to the world’s largest oil and gas companies. U.S. oil majors ExxonMobil and Chevron also benefited from rising prices, reporting profit that soared to multiyear highs in the quarter. Royal Dutch Shell reported record cash flow, while TotalEnergies also saw a sharp rise in performance.

Profit and pressure

The strong numbers come as the sector faces renewed scrutiny from activists and cynicism over its climate ambitions. Companies, including Aramco and the UAE oil giant Adnoc, have launched climate initiatives just days ahead of the COP26 climate summit, while simultaneously planning to invest to increase oil production in the coming years.

“I think most people would agree that climate change is one of the biggest challenges facing society,” Aramco Chairman Yasir Al-Rumayyan told CNBC via email.

“We need a transition that does not ignore that petrochemicals are essential building blocks to modern life — including the smartphones we all use and the products we rely on to fight COVID,” he added.

Aramco aims to achieve net zero emissions from its wholly-owned operations by 2050, and simultaneously plans to increase oil output to 13 million barrels a day by 2037. A separate pledge from Saudi Arabia to invest almost $190 billion to achieve net zero emissions by 2060 received both praise and skepticism from oil industry observers.

“The reality is that the energy transition will be long and complex, and therefore oil and gas will continue to play a key role,” Al-Rumayyan said, while also offering commentary on the recent energy crisis and its link to the energy transition.

“Recent energy disruptions around the world are evidence of the need for a stable and inclusive energy transition,” Al-Rumayyan said. “We need a transition that provides a reliable, affordable and low-cost supply of energy that leaves no one behind,” he added.

Aramco said it would disclose further details on how it plans to navigate the energy transition and achieve its net zero strategy in its Sustainability Report due out in the second quarter of 2022.

“We fully recognize that we have a long way to go, and that the journey will not be easy,” Al-Rumayyan said. “We are confident that we can meet the challenges and provide the leadership, expertise, and tools to support global progress towards a low-emissions future.”

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World

Arctic could be Russia and EU’s next flashpoint

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A new cold front could open up in the political tension between the European Union and Russia over energy. This time in the Arctic.

On Wednesday, the EU put forward proposals that could see it pushing to ban the tapping of new oil, coal and gas deposits in the Arctic in an effort, it said, to protect the region from further disruptive climate change.

Russia, a major holder of Arctic territory where an abundance of its hydrocarbon and fish stocks are found, is not too pleased with the proposals with Russia’s Deputy Prime Minister Alexander Novak telling CNBC Thursday that they were politically-motivated and nonsensical.

” I was a bit surprised when I heard about this yesterday. Why the Arctic, why not the Equator? One could come up with a number of places in the world where oil and gas production must be banned,” he told CNBC’s Hadley Gamble at the Russian Energy Week conference in Moscow, according to a translation.

“This proposal has no other motivation than political,” he added. “What do these statements tell us – that we need to stop extracting the entire gas produced at the moment? I think that the authors of these proposals have very little understanding of the real state of affairs,” he said.

The EU proposals come at a time when tensions are already high between Russia and the EU when it comes to energy, and specifically natural gas. Prices have been soaring as Europe’s demand is squeezed by tighter-than-expected supplies.

Russia has said it has ramped up gas supplies but critics say it is using its gas exports to the region for political purposes, chiefly its bid to get Germany to certify the Nord Stream 2 gas pipeline. Russia denied it was exploiting Europe’s gas crisis, with President Vladimir Putin insisting to CNBC on Wednesday that Moscow was not using gas a weapon.

Arctic engagement

The EU appears to be looking to increase its role in the region, however, and in a proposal mooted by the European Commission on Wednesday, it noted that “the Arctic region is of major strategic importance for the European Union, with regard to climate change, raw materials as well as geostrategic influence.”

It said it would aim to “strengthen EU engagement” in the region through “contributing to maintaining peaceful and constructive dialogue and cooperation in a changing geopolitical landscape, to keep the Arctic safe and stable” as well as “pushing for oil, coal and gas to stay in the ground, including in Arctic regions” and “supporting the inclusive and sustainable development of the Arctic regions to the benefit of its inhabitants and future generations.”

The Arctic is an integral part of Russia’s economy and territory, its coastline accounts for 53% of Arctic Ocean coastline and the country’s population in the region totals roughly 2 million people — that’s around half of the people living in the Arctic worldwide, according to the Arctic Institute, a center for circumpolar security studies.

Female polar bear with her two cubs on drifting iceberg in Barents Sea, Russia.

© Vadim Balakin | Moment | Getty Images

Alexei Chekunkov, Russia’s minister for development of the Russian Far East and Arctic, said in June that “the Arctic is the engine of economic growth. It accounts for 10% of our GDP and 20% of our exports” and Russia is aware of sustainability in the region; the theme for Russia’s chairmanship of the Arctic Council, a position it will hold until 2023, is “Responsible Governance for a Sustainable Arctic.”

Sustainability is a big question for the region, which is being starkly affected by climate change: The Arctic is warming about twice as fast as the global average, according to the Norwegian Polar Institute, which has warned that “significant regional warming leads to continued loss of sea ice, melting of glaciers and of the Greenland ice cap” with drastic consequences for humans and nature in the region, and the world.

Novak questioned whether the EU proposals meant that people living and working in the region would have to move.

“There are many people living in the Arctic zone of Russia, there are many settlements and communities that inhabit these regions, we generate power to support their activities. What should we deduce from such statements – that we need to put an end to all human activities, to habitation in these regions altogether?” he said Thursday.

He noted that the proposals did not only affect Russia, with the U.S., Canada, and Iceland and Norway (which are both in the European Economic Area but not the EU) also having territory in the Arctic, and who are members of the Arctic Council.

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World

Putin says Russia is not using gas as a weapon, is ready to help Europe

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Russian President Vladimir Putin delivers a speech during a plenary session of the Russian Energy Week International Forum in Moscow, Russia October 13, 2021.

Sergei Ilnitsky | Reuters

Russian President Vladimir Putin said Wednesday that his country is not using energy as a weapon against Europe and that Russia stands ready to help the region as its energy crisis continues.

“We are not using any weapons,” Putin told CNBC in Moscow on Wednesday. “Even during the hardest parts of the Cold War Russia regularly has fulfilled its contractual obligations and supplies gas to Europe,” he said.

Describing reports that Russia has withheld gas supplies to Europe, Putin called such accusations as “politically-motivated blather” and there was “nothing to support it [the idea] that we use energy as a kind of weapon.” On the contrary, he said, Russia was “expanding its supplies to Europe.”

Putin’s comments came as he participated in a panel moderated by CNBC’s Hadley Gamble at the Russian Energy Week. Speaking ahead of the panel, which includes the CEOs of ExxonMobil, BP, TotalEnergies and Mercedez-Benz, Putin said Europe should “not deal in blame-shifting” over the energy crisis in the region and that European countries had not done enough to replenish gas reserves in the summer.

“Higher gas prices in Europe are a consequence of a deficit of energy and not vice versa and that’s why we should not deal in blame shifting, this is what our partners are trying to do,” he told delegates at Russian Energy Week, an annual event in Moscow which is now in its 20th year.

“The European gas market does not look to be well-balanced and predictable” he said, with the main reason being, he added “that not everything in this market depends on the producers, no lesser role is played by the consumers of gas.”

‘Cause of the panic’

Nonetheless, Russia said it was ready to meet its contractual supply obligations and to discuss additional actions and cooperation with its European partners, Putin said, stating that Russia had already increased its gas supplies to Europe by 15% so far this year.

Putin laid the blame for Europe’s gas shortages at its own door, as well as blaming a lack of renewable energy generation this summer and reduced supplies from other partners, including the U.S.

“You see the problem does not consist in us, it consists in the European side, because, first, we know that the wind farms did not work during summer because of the weather, everyone knows that. Moreover, the Europeans did not pump enough gas into their underground gas facilities … and the supplies to Europe have decreased from other regions of the world.”

“So we have increased our supplies but others, including the U.S., have reduced their supplies and this is the cause of the panic.” Russia can supply more, he said, “but we need requests to do that.”

Russian energy week is known to be where the president lays out his energy agenda for the Russian economy and features experts discussing politics, pipelines, investment and climate change as well as risks to global growth and security.

His comments come as Europe continues to grapple with a natural gas crisis following weeks of rising prices and concerns ahead of the winter season.

Undersupplied the market?

Last week, Putin offered to increase gas supplies to the region, a move that helped to stabilize prices. However, critics of the Kremlin said that Russia had purposefully undersupplied the market in order to manufacture the crisis in order to accentuate and highlight Europe’s dependence on its supplies, an accusation Russia denies.

Experts believe Russia has been restricting gas supplies to Europe in an attempt to put pressure on Germany to speed up the certification of the now-completed Nord Stream 2 gas pipeline, which will boost gas supplies to Europe via the Baltic Sea.

The pipeline has a number of prominent critics, including the U.S. as well as eastern European countries Poland and Ukraine, who say the pipeline increases Europe’s dependence on Russian energy supplies and weakens the region in terms of energy security.

Fast forward to today, and Kremlin spokesperson Dmitry Peskov said on Wednesday that Russia was supplying gas to Europe at maximum levels under existing contracts, according to the TASS news agency. He noted that Moscow was ready to increase gas transit through Ukraine if the EU increased its purchases.

Russia is the third largest producer of fossil fuels globally and it accounts for just over 40% of the EU’s gas imports every year, according to the latest data from Eurostat.

Given Russia’s position as one of the world’s main energy exporters, it is in a position of both strength and weakness. While Russia can (and does) use its resources to bolster government revenues, the global transition away from fossil fuels to greener energies and technologies means that it could find increasingly smaller demand for its resources in future.

Read more: 5 charts show Russia’s economic highs and lows under Putin

Putin, who has been in power in Russia for over 20 years, alternating between the role of president and prime minister, finds himself at the helm amid this wider global transition.

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World

Russia’s Vladimir Putin talks energy and geopolitics

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6:35 am: IEA’s Birol says surging energy prices must not derail climate policy

The chief executive of the International Energy Agency told CNBC on Wednesday that surging energy prices must not derail the urgent need to significantly reduce worldwide fossil fuel use.

“High prices in coal, or gas, or in oil, they have nothing to do with the clean energy transition,” Fatih Birol said. “I see that some say try to portray this current situation as the first crisis of the clean energy transition — which is incorrect.”

He added: “If not addressed by the governments and others properly … and if the real facts are not brought to the public, it may well be a significant barrier for further climate policy action.”

His comments come just weeks ahead of a landmark international climate change summit due to be held in Glasgow, Scotland.

— Sam Meredith

6:05 am: Russia hits new record for daily Covid deaths as infections rise, vaccinations lag

5:45 am: Russia says gas supplies to Europe are at maximum levels, any increase to be negotiated with Gazprom

Kremlin spokesperson Dmitry Peskov on Wednesday said Russia was supplying gas to Europe at maximum levels under existing contracts, according to the TASS news agency.

Any potential increase in supply would need to be negotiated via Russia’s state-owned energy giant Gazprom, Peskov said, adding Moscow stands ready to increase gas transit through Ukraine if the European Union increases purchases.

“We can say that Russia is flawlessly fulfilling all contractual obligations under the upper bar, that is, to the possible maximum, all volumes of supplies have been increased in the light of the contracts and agreements that exist,” Peskov said, TASS reported.

— Sam Meredith

5:50 am: Putin to deliver opening remarks at Russian Energy Week

Russian President Vladimir Putin on Wednesday is scheduled to deliver a speech at the plenary session of the Russian Energy Week international forum in Moscow.

His opening remarks come ahead of a CNBC-moderated panel on global energy, where Putin will be joined by BP CEO Bernard Looney, TotalEnergies CEO Patrick Pouyanne, ExxonMobil CEO Darren Woods and Daimler CEO Ola Kallenius.

CNBC’s Hadley Gamble is set to welcome the business leaders to the stage at around 1:00 p.m. Moscow time (6 a.m. ET), with Putin expected to speak for approximately 15 minutes thereafter.

— Sam Meredith

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Business

Ups dividend and confirms buybacks

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LONDON — Oil and gas giant BP beat second-quarter earnings expectations on Tuesday, while expanding its dividend and share buyback program.

The U.K.-based energy major said it will buy back $1.4 billion of its own shares in the third quarter on the back of a $2.4 billion cash surplus accrued in the first half of the year. It also increased its dividend by 4% to 5.46 cents per share, having halved it to 5.25 cents per share in the second quarter of 2020.

It anticipates buybacks of around $1 billion per quarter and an annual dividend increase of 4% through 2025, based on an estimated average oil price of $60 per barrel.

The energy major posted full-year underlying replacement cost profit, used as a proxy for net profit, of $2.8 billion. That compared with a loss of $6.7 billion over the same period a year earlier and $2.6 billion net profit for the first quarter of 2021.

Analysts polled by Refinitiv had expected second-quarter net profit of $2.06 billion.

CEO Bernard Looney told CNBC on Tuesday that a combination of strong underlying performance, an improving balance sheet and higher commodity prices had enabled the company to up its returns to shareholders.

“We have raised our own plan from $50 to $60 (average oil prices) for the next several years — that is on the back of strong demand. GDP is back to pre-pandemic levels and the vaccines are clearly working, OPEC+ is holding discipline and supply is tightening, particularly in U.S. shale,” he said.

The results reflect a broader trend across the oil and gas industry as energy majors seek to reassure investors they have gained a more stable footing amid the ongoing coronavirus pandemic. The British-Dutch multinational Royal Dutch Shell, France’s TotalEnergies and Norway’s Equinor all announced share buyback schemes last week.

Share prices of the world’s largest oil and gas majors are not yet reflecting the improvement in earnings, however, and the industry still faces a host of uncertainties and challenges.

Shares of BP started Tuesday’s session up almost 15% year-to-date, having collapsed roughly 47% in 2020. The company’s stock added a further 2.3% in early trade on Tuesday.

Operating cash flow sat at $5.4 billion at the end of the second quarter, which includes the annual payment of around $1.2 billion the company makes for the Gulf of Mexico oil spill in 2010.

Meanwhile net debt fell to $32.7 billion from $33.3 billion in the first quarter, marking the fifth consecutive quarter of decreased debt from the $51 billion seen in the first quarter of 2020.

A year out from the announcement of its strategic overhaul, announced in August 2020, the company highlighted that it had built a 21 gigawatt renewable energy pipeline and brought eight major oil and gas projects online.

It also upped its production guidance in the third quarter, citing the completion of seasonal maintenance activity and the ramp-up of major projects.

Looney told CNBC that the eight new projects, along with the cost savings facilitated by BP’s major restructure that saw more than 6,000 job cuts, would drive production efficiency.

Stronger commodity prices

BP’s financial results come after a period of stronger commodity prices. International benchmark Brent crude futures rose to an average of $69 a barrel in the second quarter, up from an average of $61 in the first three months of the year. Brent futures were trading at around $72.74 per barrel on Tuesday morning.

Oil prices have rebounded to reach multi-year highs in recent months and all three of the world’s main forecasting agencies — OPEC, the International Energy Agency and the U.S. Energy Information Administration — now expect a demand-led recovery to pick up speed in the second half of the year.

It comes after a 12 month period which BP has described as “a year like no other” for global energy markets.

In its benchmark Statistical Review of World Energy, published on July 8, BP said that over the past seven decades the company had borne witness to some of the most dramatic episodes in the history of the global energy system. These crises included the Suez Canal crisis in 1956, the oil embargo of 1973, the Iranian Revolution in 1979 and the Fukushima disaster in 2011.

“All moments of great turmoil in global energy,” Spencer Dale, chief economist at BP, said in the report. “But all pale in comparison to the events of last year.”

The ongoing Covid-19 crisis triggered a historic oil demand shock in 2020, with Big Oil companies enduring a brutal 12 months by virtually every measure. The pandemic coincided with falling commodity prices, evaporating profits, unprecedented write-downs and tens of thousands of job cuts.

Analysts told CNBC ahead of the latest batch of second-quarter earnings that while energy companies were likely to try to claim a clean bill of health, investors were expected to harbor a “tremendous degree” of skepticism about the long-term business models of oil and gas firms. This was predominantly a result of the deepening climate emergency and the urgent need to pivot away from fossil fuels.

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