United States asks India to restrain Russia oil buying ($FT)
U.S/EU explore options to limit Russia’s oil revenues ($WSJ)
EU/UK ban on insuring Russian oil threatens to raise prices
U.S. gas prices to remain high in 2022 before easing in 2023
China freight volumes and logistics return to normal (trans.)
China sends inspectors to coal regions after prices rise ($BBG)
China threatens to punish “price gouging” (trans.) *
* The warning from China’s State Administration for Market Regulation against price gouging echoes ideas and language employed by the Biden administration and U.S. Congress and the UK Department for Business, Energy and Industrial Strategy. Policymakers in whatever type of government or historical era always try to deflect blame for rising food and fuel prices on to middlemen and traders.
In medieval England, middlemen could be prosecuted under the common law for the offences of forestalling (buying up supplies before they could be delivered to the market), regrating (buying and reselling at a higher price) and engrossing (buying a large proportion of the available supplies to resell them at a higher price). Present-day governments of the United States, the United Kingdom and China would approve.
FREEPORT LNG’s explosion and shutdown is only expected to have a limited impact on the availability of gas in either the United States or the European Union. The premium for gas deliveries in July 2022 to Northwest Europe compared with Louisiana’s Henry Hub has increased to €56/MWh compared with €50 before the incident. But the spread had already shrunk from €100-180 in March in the immediate aftermath of Russia’s invasion of Ukraine.
The market is relatively well situated at the moment to absorb the loss of Freeport LNG exports. Europe has been overbuying LNG and overfilling storage at an unsustainable rate that would have to slow in any event over the next 1-2 months. At the same time, the United States has been overselling LNG, leaving inventories below average for the time of year, implying exports would have had to slow soon.
Even before the Freeport incident, futures prices were starting to enforce an adjustment, with EU prices softening while U.S. prices were climbing to the highest for more than a decade. The stoppage in exports from the facility is accelerating the correction already underway, tempering the need for a larger price adjustment. As a result, the previous weakening of EU prices has been arrested for now, while the prior rise in U.S. prices has been capped for the time being.
The Freeport incident is not expected to have a major impact on gas availability in the European Union. Europe’s gas futures summer-winter calendar spread from July 2022 to January 2023 is still in a near-record contango of more than €11 per MWh, down only slightly from €14 before the explosion, implying the market remains heavily oversupplied in the short term:
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