EUROPE’s gas storage sites reported small net inflows on March 18 and March 19, a tentative sign the winter inventory depletion season is coming to an end early. The data is provisional and contains a mix of confirmed reports and estimates. But storage across the European Union and the United Kingdom was 55.8% full on March 19, the second-highest for the time of year after winter 2019/20 (56.2%) and well above the prior ten-year average (34.8%):
U.S. INTEREST RATE TRADERS expect the Federal Reserve to raise its federal funds target for longer to peak at a higher level and sustain them at a higher rate than before, following a warning by the central bank’s chief. Policy-controlled interest rates are expected to continue rising until they peak at 5.00-5.25% in May 2023, up from 3.75-4.00% at present, and still be at 4.00-4.25% at the end of 2024:
U.S. PETROLEUM INVENTORIES including the strategic reserve fell by -3 million barrels in the week to October 28. Stocks have depleted in 90 of the last 122 weeks by a total of -494 million barrels since the start of July 2020:
U.S. TREASURY securities with ten year maturity are yielding 3.53%, the highest since 2010, as traders anticipate the central bank will have to keep interest rates higher for longer to bring down inflation. Yields are rising at the fastest year-over-year rate since 1999. The increase is testing the downward trend in place since the mid-1980s. If the increase is sustained it will force a widespread re-pricing of most other assets:
HEDGE FUNDS and other money managers made few changes to their positions in the six most important petroleum futures and options contracts in the week to September 13. There were total net purchases of +4 million barrels with buying in NYMEX and ICE WTI (+10 million) and Brent (+3 million) but sales of U.S. gasoline (-5 million), U.S. diesel (-3 million) and European gas oil (-1 million):
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RHINE RIVER water levels measured at Kaub are the lowest for the time of year for more than a quarter of a century and indicative of drought conditions across northwest Europe. Low rainfall is restricting river borne freight and is an indicator of the stress for thermal and nuclear power plants that rely on river water for their cooling systems. For coal and gas combustion plants, efficiency and maximum output is reduced. For nuclear plants, insufficient cooling capacity can force output limits or a precautionary safety shutdown:
EUROZONE manufacturers reported a decline in activity this month for the first time since the first wave of the pandemic in 2020. Preliminary data show the manufacturing sector purchasing managers index fell to 49.6 in July (28th percentile) down from 52.1 in June (47th percentile) and 54.6 in May (65th percentile). Russia’s invasion of Ukraine and the sanctions the EU has imposed in response have pushed the region’s economy into recession:
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* Sharp increases in the cost of food and fuel have often acted as the trigger for unrest. In eighteenth century England, increases in grain prices as a result of bad harvests or war frequently led to local disturbances, usually targeting bakers, grain merchants and government storehouses, with magistrates often calling in soldiers to restore order. Fuel riots were less common but a sharp rise in the price of coal would normally trigger a parliamentary inquiry to investigate monopolistic practices and hoarding. Food and fuel price rises were always seen as politically sensitive and a potential threat to public order (“The Coal Industry of the Eighteenth Century”, Ashton and Sykes, 1929).
U.S. PETROLEUM INVENTORIES including the strategic petroleum reserve fell -1 million bbl to 1,678 million bbl last week. Stocks have fallen in 78 out of the last 105 weeks by a total of -440 million bbl since the start of July 2020. The most recent week saw an increase in crude inventories (+2 million bbl) but depletion of gasoline (-2 million), distillate fuel oil (-1 million) and jet fuel (-1 million).
The drawdown in fuel stocks in the week ending July 1 is likely associated with the impending public holiday on July 4, which will have seen inventories pulled forward from the primary distribution system of refineries, pipelines and bulk terminals (where they are recorded) into the secondary system of retailers and local fuel suppliers as well as end-users’ own storage tanks (where they are not recorded). It largely reversed a big build in gasoline, distillate and jet fuel the week before as stocks were pre-positioned ahead of the holiday demand:
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Texas grid anticipates record electric load this week
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TEXASELECTRICITY CONSUMPTION has increased at a compound rate of +1.70% per year over the last five years, notwithstanding the pandemic and recession in 2020. Electricity sales to end-users in the state totalled 433 TWh between April 2021 and March 2022 (the latest data available) up from 398 TWh between April 2016 and March 2017:
U.S. PETROLEUMINVENTORIES including the strategic petroleum reserve depleted by another -5 million bbl to 1,681 million bbl in the week to May 27. Stocks have fallen in 74 of the last 100 weeks by a total of -436 million bbl since the start of July 2020:
U.S. EAST COAST DISTILLATE stocks fell by another -0.6 million bbl to just 21.0 million bbl in the week to May 27. Regional distillate inventories are now -23 million bbl (-52%) below the pre-pandemic five-year average and the supply position shows no sign of improving:
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The United Kingdom has a two-day public holiday on Thursday and Friday to celebrate the sovereign’s platinum jubilee, so Best in Energy will resume on Monday.
OPEC ⁺ explores suspending Russia allocation ($WSJ)
Russia prepares to re-route oil from Europe to Asia
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Africa pushes back against emissions hypocrisy ($FT)
EUROZONE manufacturers reported a further slowdown in growth last month as rapid inflation and the war between Russia and Ukraine took their toll. The manufacturing purchasing managers’ index slipped to 54.6 in May (65th percentile) from 55.5 in April (74th percentile) and 63.1 in the same month last year (100th percentile):
EUROPE’s gas futures summer-winter calendar spread from July 2022 to January 2023 is moving deeper into contango as inventories rise at the fastest rate on record alleviating some concerns about filling storage sites:
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