Best in Energy – 26 January 2023

Europe’s gas-fired generators reduced output

Indonesia coal exports hit record high in 2022

South Africa’s coal exports slumped last year

U.S. oil output growth set to slow in 2023/24

Microsoft warns about revenue outlook

Higher-earners reduce hours worked ($WSJ)

Tesla discounts vehicles to drive sales ($WSJ)

U.S./Iran nuclear talks near breakdown ($FT)

CHINA’s Lower Yangtze mega-region is being hit by a wave of intense of cold which will drive a significant increase in heating demand, though most factories are closed for the Lunar New Year holiday. Temperatures in Nanjing were more than -6°C below the long-term seasonal average on January 25. So far this winter heating demand (731 HDDs) has been lower than average (789 HDDs). But the recent run of cold weather has trimmed the cumulative deficit in heating demand to -7% down from -11% on January 13:  

U.S. PETROLEUM INVENTORIES including the strategic reserve rose +4 million barrels to 1,606 million barrels in the seven days to January 20. But stocks were -170 million barrels below the level a year ago and -304 million barrels below the level before the pandemic in 2019. Commercial crude stocks have increased by +33 million barrels compared with the same point last year. But only because the strategic petroleum reserve has been depleted by -220 million barrels:

Best in Energy – 25 January 2023

China’s quota system for oil import and exports

U.S. refinery margins strengthen on maintenance

Northeast Asia boosted coal imports in December

Brazil’s hydroelectric dams are brim full ($BBG)

U.S. air freight moves to secondary hubs ($WSJ)

U.S. temporary employment is declining ($WSJ)

Lithium producers anticipate long boom ($FT)

U.S. oilfield services see multi-year boom ($FT)

SINGAPORE’s inventories of distillate fuel oils have stabilised and increased slightly since nearing a multi-year low under 7 million barrels in early November. The increase has coincided with an acceleration of diesel exports from China and a slowdown in freight movements which have relieved some of the regional shortage. Nonetheless stocks are still -2.5 million barrels (-24%) below the prior ten-year seasonal average:

Best in Energy – 24 January 2023

Freeport LNG requests approval to restart some operations

Pakistan restores power transmission system after blackout

North Sea seabed conflicts between wind farms and CCUS

U.S. official denies easing sanctions on Iran oil ($BBG)

Investors bet on rapid inflation slowdown ($WSJ)

U.K. explores tariff to protect steelmakers ($FT)

Nuclear reactor life extensions to 80 years ($BBG)

CHINA imported 508 million tonnes of crude oil in 2022, down from 513 million in 2021 and 542 million in 2020, according to preliminary data from the General Administration of Customs. Slower imports as the country grappled with intermittent  lockdowns eased pressure on global petroleum supplies. But the economy’s re-opening is likely to boost crude imports and tighten the market in 2023:

Best in Energy – 23 January 2023

U.S. gasoline output falling faster than use ($BBG)

EU gas price cap risks destabilising markets

G7/Russia price cap for refined oil products

Wind turbine failures are increasing ($BBG)

Germany’s build out of LNG capacity ($BBG)

Tesla discounts disrupt vehicle prices ($WSJ)

EU prepares for ban on Russian diesel ($FT)

Home appliances and web connection ($WSJ)

Pakistan hit by cascading power grid failure

LONDON and Southeast England reached the half-way point in the heating season on January 23. London has experienced 769 heating degree days so far this winter compared with a long-term average of 825. After a mild spell from mid-October to mid-November, and another from mid-December to mid-January, cold spells in early December and late January have erased much but not all of the deficit in heating degree days:

Best in Energy – 20 January 2023

China traders buy spot market crude

EU LNG price survey off to slow start

U.S. renewables displace gas and coal

EU refiners focus on biofuels growth

Russia is losing the energy war ($FT)

Turkey’s energy transition stalled in 2022

U.S. REAL PERSONAL INCOMES less current transfer payments (PILT) were down marginally in the three months from September to November 2022 compared with the same period in 2021. Real PILT captures the combined impact of changes in employment, wages and other compensation, and inflation. Turning points are one of the main indicators the National Bureau of Economic Research (NBER)’s Business Cycle Dating Committee uses to identify the onset of recessions and expansions. The deceleration in PILT to zero is a sign the economy is close to stalling:

U.S. PETROLEUMINVENTORIES including the strategic reserve increased by +2 million barrels in the seven days ending on January 13 after rising by +22 million barrels the week before. The combined two-week increase was the largest since the first wave of the coronavirus pandemic in the second quarter of 2020. But similarly large increases occurred in the first weeks of 2020 and 2019 so the rise was probably attributable in part to seasonal factors. Inventories are still -94 million barrels (-5% or -2.76 standard deviations) below the prior ten-year seasonal average:

Best in Energy – 19 January 2023

Energy conservation and excess mortality ($BBG)

J.B. Hunt earnings confirm freight decline ($WSJ)

U.S. refiners schedule more maintenance in 2023

U.S. gas prices forecast to fall in 2023/24 by EIA

Russia’s oil revenues predicted to decline ($FT)

Iran hit by winter gas shortages ($BBG)

Nuclear weapons and decision-making ($FT)

U.S. MANUFACTURERS are raising prices more slowly as input costs for raw materials and energy ease and demand for goods falls. Producer selling prices for finished products other than energy and food increased at an annualised rate of +4.2% in the three months to December 2022 down from an annualised +11.5% increase in the three months to April 2022. But selling prices are still rising twice as fast as the central bank’s target of a little over 2% per year for overall inflation, keeping upward pressure on interest rates:

Best in Energy – 18 January 2023

Europe’s gas supply gets lucky with warm winter ($BBG)

IEA forecasts global oil use to rise +1.9 million b/d

France electric grid cites improved reserve margin

Texas needs more progress on electricity reliability

Europe’s coal prices slump in competition with gas

U.S. airlines report strong passenger demand ($FT)

LONDON’s Heathrow airport handled 109,151 metric tonnes of air cargo in December 2022 down by -14% compared with 127,188 metric tonnes in December 2021. Air freight volumes are slackening as the global manufacturing sector enters a downturn, with the United Kingdom one of the hardest-hit economies:

Best in Energy – 17 January 2023

China’s population fell in 2022, first time since 1961

China’s coal production hits record high in 2022

India to boost coal imports to meet power demand

Energy transition and the employment impact

EU LNG price assessment thwarted by lack of trades

U.S. businesses turn cautious on investment ($WSJ)

U.S. price rises run into customer resistance ($WSJ)

INDIA’s coal stocks at power plants remain low for the time of year at just 12 days of consumption, up from 9 at the same point in 2022, but down from 18 in 2021 and 19 in 2020. There is a risk inventories could deplete to critical levels in the event of a pre- or post-monsoon heatwave or other pressure on the electricity system, which explains why the government has instructed power producers to increase coal imports:

Best in Energy – 16 January 2023

[MUST READ] U.S. shale revolution has ended ($FT)

EU boosts diesel imports from Russia ahead of ban

Iran oil exports rise as sanctions enforcement eased

India oil imports from Russia at record high ($BBG)

Iran hit by cold weather-related gas shortage ($BBG)

U.S. gas output growth set to decelerate as prices fall

U.S. oil refinery distillation unit to start up in Q1 2023

Russia’s crude oil exports able to avoid G7 sanctions

Germany boosted non-Russian coal imports in 2022

U.S. heating oil stocks are more comfortable ($WSJ)

U.S./Taiwan relations and next election cycle ($FT)

FRANKFURT and the rest of Northwest Europe are roughly half-way through the 2022/23 heating season. In the three decades between 1981 and 2010, on average 50% of heating degree days and heating demand at Frankfurt occurred before January 15. For London and southeast England, the half-way point arrives a few days later on January 23. So far this winter has been much milder than average. Frankfurt had accumulated 860 degree days up to January 15 compared with a long-term average of 1,078:

Best in Energy – 13 January 2023

Germany’s gas buying intensified price spike ¹

PJM probes generator unavailability in storm

EU economy boosted by drop in energy prices

EU seeks alternatives to Russian diesel ($BBG)

China’s epidemic moves to rural areas ($BBG)

Tesla discounts cars after missing sales target

¹ Germany’s government-directed gas buying in the spot market likely contributed to the spike in prices in summer 2022 and subsequent slump in winter 2022/23. Price spikes normally occur when a price-insensitive buyer is forced into the market to buy no matter the cost and no matter how much it moves prices higher against themselves.

Spikes are often characteristic of a short-seller forced to buy back their position (“short and caught” or “he who sells what isn’t his’n, must pay the price or go to prison”).

In this case Germany purchased gas for storage regardless of cost to increase inventories and improve energy security ahead of the winter, anticipating a disruption of Russian pipeline flows. Playing the role of “forced buyer”, Germany’s buying likely caused or at least accelerated the rise in prices to record levels in August 2022. Once the forced buying was completed, however, prices corrected lower.

Some EU policymakers have suggested the spike shows the futures market “failed” in the summer of 2022 and needs to be reformed or replaced with an alternative and more representative and liquid benchmark. But arguably the market was simply responding to the presence of a very large and completely price insensitive buyer.

U.S. SERVICE SECTOR inflation appears to have peaked. But prices are still rising at an annualised rate of 5.5-7.5%, two or three times faster than the central bank target of 2.0-2.5% per year. Inflation in the labour-intensive services sector tends to be stickier than for commodities and merchandise, which is why it tends to be a focus for policymakers: