Best in Energy – 14 March 2022

China to cut reliance on coal imports ($BBG)

Diesel shortage pushes up prices ($BBG)

India plans to take more Russian crude

Steel sector decarbonisation trajectories

China’s government priorities for 2022

(see also the premier’s press conference)

China’s nickel hedger explores delivery

New Zealand cuts fuel taxes temporarily

France to rebate fuel charges temporarily

China/Russia gas and transition pathways

Recession indicators are increasing ($BBG)

Inflation is top issue for U.S. voters ($WSJ)

Europe/Asia prepare to battle for gas ($BBG)

U.S./Venezuela talks run into opposition ($FT)

Russia corporate exits, uncertain return ($BBG)

Digital currency and banking systems ($BBG)

Shipbuilders benefit from LNG boom ($FT)

EUROPE’s gas futures prices have fallen sharply in recent days amid an improving supply situation and expectations for an early de-escalation of the conflict between Russia and Ukraine. Front-month futures prices have almost halved to €118/MWh from €227/MWh a week ago. The six-month calendar spread from midsummer July 2022 to midwinter January 2023 has shrunk to less than €18 from almost €72 a week ago, implying less anxiety about rebuilding inventories before next winter:

EUROPE’s gas inventories are becoming slightly more comfortable as ultra-high prices and mild weather curb consumption. EU and UK inventories are on course for a post-winter low of 265 TWh up from a projection of 257 TWh two weeks ago and 238 TWh a month ago:

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Best in Energy – 11 March 2022

LME’s persistently problematic nickel contract

Nickel’s big short doesn’t want to close ($BBG)

Europe braces for intensifying diesel shortage

OPEC/U.S. shale find objectives align at dinner

China’s energy strategy still relies heavily on coal

U.S./Iran nuclear talks need top political decisions

EU considers emergency power price limit ($WSJ)

White House hunts for more sources of oil ($WSJ)

China reports 1,100 new coronavirus cases ($BBG)

U.S. distillate prices rise on low inventories

U.S. CONSUMER price inflation accelerated in February even before the main impact was felt of rising energy prices and other supply chain disruptions stemming from Russia’s invasion of Ukraine. Inflation has run at more than double the Federal Reserve’s flexible average target of +2.0% per year over the last two years. In the last three months, prices have been rising four times faster than the target, a sign the economy is overheating, with too much consumption and investment spending overwhelming limited production capacity and struggling supply chains. The chartbook contains a full set of long-term and short-term inflation indicators:

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Best in Energy – 10 March 2022

OPEC+ attempts to maintain unified position

Biden tries to deflect blame for rising fuel prices

BP’s rapid decision to exit from stake in Rosneft

ENI stops buying Russian oil

Russia oil tanker struggles to find discharge port

China’s independent refiners to cut processing

U.S./Russia oil embargo is a balancing act ($FT)

Asia’s manufacturers hit by rising costs ($BBG)

Europe’s fertiliser makers cut production ($BBG)

U.S. DISTILLATE fuel oil inventories fell by -5 million bbl to 114 million bbl last week- the lowest seasonal level for more than 15 years. Distillate stocks were already looking tight and are now on track to become exceptionally tight before mid-year. Distillate inventories are on course for an expected first-half low of 103 million barrels (with a range of 92-114 million). Stocks are on track to hit their lowest seasonal level since 2008, when distillate shortages helped propel crude oil prices to a record high at the middle of the year:

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Best in Energy – 9 March 2022

Saving oil in a hurry – an IEA guide

Shell halts spot Russian oil buying

Russia’s oil exports stuck at sea

Biden warns gasoline prices to rise

U.S. shale firms can’t boost output

U.S./Russia oil trade and sanctions

Europe must cut energy use ($BBG)

U.S. urges more shale output ($FT)

Qatar mediates U.S./Iran talks ($FT)

U.S./Venezuela talks to relax sanctions

U.S./Venezuela prisoner release ($FT)

LNG growth shifts from Asia to Europe

LME nickel contract fails and halted

Nickel hit by settlement fail ($BBG)

Russia to keep leased aircraft ($BBG)

U.S. IMPORTS of petroleum from Russia averaged 0.67 million b/d in 2021, mostly in the form of semi-processed oils from Russian refineries imported for further processing (0.35 million b/d) and crude petroleum (0.20 million b/d), with a small volume of finished products (0.12 million b/d). Replacing these items with oil sourced from other countries should be relatively straightforward given the small volumes involved. These items account for a modest share of Russia’s total exports and a small share of U.S. total imports. Banning U.S. oil imports from Russia is therefore primarily symbolic:

Best in Energy – 8 March 2022

Russia threatens to cut gas flows as conflict intensifies

Germany repeats will not sanction energy flows (trans.)

United States could ban Russian oil imports

Russia warns of spike in oil and gas prices

EU plan to end Russian gas reliance eventually

LME suspends nickel contract as prices double

Oil consumption falls as prices climb ($BBG)

Europe’s energy users hit by high prices ($FT)

Global food security threatened by Ukraine war

EUROPEAN gas futures prices have moved into an extreme backwardation – as market signals urgent need to conserve inventories and rebuild them as much as possible ahead of winter 2022/23. The calendar spread from midsummer Jul 2022 to midwinter Jan 2023 has climbed to €72/MWh from less than €1 at the end of February as the market tries to shut down all non-essential consumption and attract maximum LNG inflows away from Asia:

EU+UK GAS inventories are becoming slightly more comfortable as ultra-high prices attract gas to the region and suppress consumption from industrial users and power producers, despite colder weather in recent days, showing price signals are having an impact:

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Best in Energy – 7 March 2022

U.S./EU discuss ban on Russian oil imports

White House wary about higher oil prices

U.S dilemma: sanctions and inflation ($WSJ)

U.S./Iran nuclear talks focus on final items

U.S./Venezuela officials hold negotiations

U.S./Venezuela sanctions could be relaxed

Iran’s timetable for boosting oil exports

U.S. shale firms unable to raise output ($FT)

Freight flows badly disrupted by war ($WSJ)

BRENT’s front-month futures contract is trading at $126 per barrel, the highest in real terms since July 2014 and in the 87th percentile for all months since 1990. Traders are anticipating U.S. and EU sanctions on Russia’s oil exports will remove millions of barrels per day from the market in the next few months. Policymakers have been careful to exempt Russia’s energy exports from sanctions so far. But traders have proved reluctant to handle cargoes given the legal and reputational risks involved so the exemption is proving ineffective – illustrated by the outcry over Shell’s purchase of a cargo on Friday. Traders anticipate even the legal exemption could be removed in the next few days as policymakers come under intense public pressure to toughen sanctions further:

EUROPE‘s benchmark gas futures price is at a record €260/MWh – signalling urgent need to conserve as much gas as possible to start rebuilding depleted inventories ahead of winter 2022/23:

GLOBAL FOOD PRICES hit a record high in February and were up +20% compared with the same month a year earlier – even before the conflict between Russia and Ukraine intensified and threatened to disrupt shipments from two of the world’s largest grain exporters. Food price inflation is set to accelerate further if the conflict is prolonged. The combination of rapidly escalating prices for food, energy and other industrial commodities would be severely recessionary:

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Best in Energy – 4 March 2022

Energy markets in turmoil” is a podcast I recorded earlier this week with Cardiff Garcia for The New Bazaar, covering developments in oil and gas prices, OPEC and U.S. shale, the energy transition, and why my current reading is a history of Britain’s coal industry before 1700. Cardiff is one of the best interviewers in the business and the long format allowed us to explore ideas in greater depth. I hope you enjoy listening as much as I enjoyed recording

U.S./Saudi relations complicated by oil spike

Saudi Arabia’s crown prince gives interview

IEA’s plan to cut EU reliance on Russian gas

Germany rapidly rethinks energy policy

China to move into Russian oil and gas ($EF)

Russia/Ukraine war hits automakers ($WSJ)

U.S. energy consumption to rise through 2050

Sanctions – do they change behaviour? ($WSJ)

U.S. DISTILLATE inventories fell to 119 million bbl last week. Stocks are at the lowest for the time of year since 2014. On the current trajectory they are expected to hit a low of 106 million during the second quarter, also the lowest since 2014. But the slower rate of inventory depletion in recent weeks has reduced the likelihood they will drop even further to critically low levels:

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Best in Energy – 3 March 2022

U.S./Russia caution about sanctioning oil and gas

U.S./EU cautious on Russian oil and gas curbs ($FT)

Europe/Russia LNG disrupted by legal uncertainty

China/Russia coal trade hit by U.S. dollar sanctions

Russia is world’s largest supplier of nuclear fuel ($BBG)

Airspace closures hit long-haul flying routes ($WSJ)

China plans exit from zero-covid strategy ($WSJ)

Taiwan blackouts hit 5 million households

Britain needs more high-productivity firms ($BBG)

U.S. SPR crude oil release authority under U.S. law *

* The International Energy Agency likely ordered the release of 60 million barrels from emergency reserves, with the United States contributing 30 million barrels, because this is the maximum the president can authorise under the provisions of 42 USC 6241(h) without invoking a more serious international energy crisis under the terms of 42 USC 6241(d).

EU28 GAS inventories are on course to end the winter around 259 TWh compared with a pre-pandemic five-year average of 315 TWh. Europe will need to attract significant gas imports, and reduce consumption over the spring and summer, to rebuild depleted inventories ahead of winter 2022/23, which will likely keep prices much higher than normal for the rest of the year and into next year:

EUROPEAN benchmark gas futures for deliveries at the heart of next winter in January 2023 climbed to a record €150 per megawatt-hour on Wednesday as traders anticipated the shortage of gas will last through the rest of this year and into 2023, with the economic conflict between the EU and Russia making it more difficult to rebuild depleted stocks this summer:

EU EMISSIONS prices are sliding as traders anticipate a business cycle slowdown that will cut energy consumption and emissions across the region this year:

AUSTRALIA’s front-month coal futures price has surged to a record $440 per tonne, up from less than $170 at the end of last year, as sanctions disrupt coal exports from Russia:

Best in Energy – 2 March 2022

IEA to release 60 million bbl from emergency reserves

Oil traders shun crude and fuels from Russia

Global supply chains hit by political risks ($FT)

U.S. electricity price rising at fastest since 2008

Oil prices surge on loss of Russia exports ($BBG)

U.S. sanctions may herald “peak foreign reserves”

BRENT front-month futures prices have surged to $110 per barrel as traders concluded the 60 million barrels of emergency oil stocks to be released by the United States and other members of the International Energy Agency may not be enough to offset the loss of oil exports from Russia as a result of sanctions. After adjusting for inflation, Brent prices are now in the 84th percentile for all months since 1990 and the 69th percentile for all months since 2000:

EUROPE’s benchmark natural gas futures contract has spiked to a near-record €160 per megawatt-hour, reflecting the growing risk of a disruption to Russian gas exports as the economic warfare between Russia and the EU intensifies. Europe has enough gas in storage to last through the end of March but will need to attract large volumes of imports to refill depleted storage sites before next winter:

U.S. TREASURY yield curve continues to flatten as interest rate traders anticipate an increased probability of a mid-cycle slowdown or end-of-cycle recession within the next 12 months as a result of accelerating inflation, rising interest rates and now the disruption of commodity supply chains arising from the Russia/Ukraine conflict:

EU EMISSIONS allowance prices have tumbled almost 36% to €62 per tonne from a recent peak of €96 in early February:

U.S. MANUFACTURERS reported another widespread increase in business activity in February. The ISM composite purchasing managers’ index rose to 58.6 in February from 57.6 in January. But the expansion is decelerating from the very rapid rate last year as the business cycle matures: