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: