Best in Energy – 11 July 2022

Saudi Arabia’s oil production capacity scrutinised

Canada to return Nord Stream impounded turbine

Ocean carriers likely to revert to slow steaming

India rejects US/EU calls to boycott Russian oil

France plans for complete loss of Russian gas

France prepares to switch from gas to fuel oil

Freight rates start to soften as volume falls ($WSJ)

U.S. central bank tries to avoid stop-go policy ($WSJ)

U.K. businesses prepare for onset of recession ($FT)

China boosts coal by rail deliveries by +9% (trans.)

Texas appeals for electricity conservation on July 11

U.S. BUSINESS inventory ratios have started to climb as sales slow and firms struggle to shift extra items ordered on a precautionary basis at the height of the supply-chain crisis. Manufacturers, wholesalers and retailers held inventories equivalent to 1.29 months worth of sales in April up from a cyclical low of 1.26 months in November. Excess stocks are concentrated at the retail level where the ratio has climbed to 1.18 months up from 1.09 months in October 2021.

U.S. inventory ratios remain low by pre-pandemic standards but will climb quickly if sales slow further in response to rapid inflation and a business cycle downturn. Inventory reduction is likely to weigh on economic growth over the next six months as businesses to limit or reverse overstocking:

TEXAS temperatures have climbed well above the long-term seasonal average since the start of July increasing the strain on the state’s isolated electric grid. Cumulative cooling degree days since the start of the year have been almost +30% higher than the 1981-2010 average:

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Best in Energy – 14 June 2022

Pakistan hit by long blackouts as EU diverts LNG ($BBG)

Northeast Asia’s tepid LNG imports offset Freeport blast

U.S. shale producers opt not to accelerate drilling

U.S. finances construction of rare earths plant

Yang/Sullivan hold another round of talks (trans.)

(see also far briefer statement from White House)

U.S. INTEREST RATE traders expect the federal funds rate to reach 3.50-3.75% by January 2023 up from 0.75-1.00% at present as the central bank attempts to bring inflation under control. If they prove necessary, increases on this scale would result in a significant slowdown in the business cycle:

DATED BRENT calendar spreads are signalling exceptional tightness over the next two months. The extreme backwardation is consistent with the disruption of Russia’s exports and the maintenance season for platforms, pipelines and fields in the North Sea. But it could also be a sign the market is being squeezed. Strong fundamentals create ideal conditions for a squeeze. “Always squeeze with the grain of the market not against it,” as a veteran trader told me over lunch many years ago:

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Best in Energy – 19 May 2022

India’s grid is struggling to supply record demand

(see also background article on power shortages)

U.S. grid faces reliability challenges this summer

Indonesia boosts energy subsidies by $24 billion

EU elects to turn from Russia gas back to coal ($FT)

Bloomberg’s plan to shake up UK journalism ($BBG)

U.S. PETROLEUM inventories including the strategic petroleum reserve depleted by another 8 million bbl to 1,691 million bbl last week. Inventories have depleted in 72 of the last 98 weeks by a total of 426 million bbl since the start of July 2020. The persistent shortage of oil is putting intense upward pressure on prices:

U.S. GASOLINE stocks fell by 5 million bbl to 220 million bbl in the week to May 13. Inventories have fallen for 14 of the last 15 weeks by a total of 30 million bbl and are now at the lowest for the time of year since 2014:

U.S S&P 500 equity index has fallen by 7% compared with the same period a year ago, and is down by 15% in real terms, as investors anticipate an imminent business cycle slowdown:

U.K. INFLATION has accelerated to 9%, the fastest rate since 1982 and one of the most significant price shocks since the Second World War:

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Best in Energy – 16 May 2022

China’s coal output rises sharply in Jan-Apr

China utilities to rebuild coal stocks ($BBG)

U.K. gasoline and diesel sales start to fall

EU hurries to rebuild depleted gas inventories

EU explores emergency price cap on gas ($BBG)

Climate pressure tempered by energy security

EU/Ukraine steel trade disrupted by war ($FT)

Texas grid appeals for electricity conservation

South Africa increases load-shedding blackouts

EU backs down on rouble gas payments ($BBG)

Remote workers balk at return to office ($WSJ)

CHINA’s coal production climbed by almost +12% in the first four months of the year compared with the same period in 2021, as the government ordered miners to maximise output to reduce the risk of electricity shortages and cut dependence on imports from Australia:

U.S. TRANSPORTATION SERVICES (freight, post and passengers) prices increased at an annualised rate of almost +47% in the three months from January to April – as the supply chain remained under pressure and fuel costs surged after Russia’s invasion of Ukraine and sanctions imposed in response:

U.S. CONSUMER SENTIMENT has weakened sharply this month and has fallen to levels consistent with a recession in the past:

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