WESTERN EUROPE’s temperatures are expected to be above average for the time of year through December, according to the European Centre for Medium-Range Weather Forecasting, which would reduce heating demand and ease pressure on gas and electricity supplies:
U.S. EMPLOYMENT has been growing faster than would have been expected based on output growth alone. The discrepancy between rapid job gains and slower growth in real gross domestic product is evident whether jobs are measured from the employer side (payrolls) or employee side (household surveys). If historical relationships reassert themselves, job gains are likely to slow or output growth will accelerate:
U.S. EMPLOYMENT in the transportation and warehousing super-sector has been flat since June after growing rapidly for two years following the first wave of the pandemic. The number of jobs in the sector has levelled off around 6.5 million up from 5.8 million before the arrival of the pandemic in the first quarter of 2020:
¹ Like any cartel, OPEC+ uses a set of production baselines so total group supply can be adjusted in response to changes in market demand while ensuring each member retains a fair pro rata share. Like other cartels, the baselines used by OPEC+ do not necessarily correspond to shares in actual production or capacity in the real world. Cartels often find it very difficult to reach unanimous agreement to change baselines and shares. So in most cases they end up using baselines that have some historical basis but have become out of date.
Between the 1600s and 1800s, England’s Newcastle coal cartel (known as “the limitation of the vend”) allocated larger shares to some mines than they could actually supply. Some of the older, smaller or higher-cost mines had not been able to grow output fast enough to maintain their traditional market shares. But it was easier to keep the baselines and adjust allocations up and down in line with changing market demand than to renegotiate them. OPEC+ has often faced the same problem.
For both the Newcastle coal cartel and OPEC+, total allocations were often above total supply, ensuring changes in notional allocations were normally greater than changes in actual production.
OPEC+ frames its decisions in terms of adjustments to total and individual allocations, not production. The actual change in production is often different. In this case, many OPEC+ countries have been unable to utilise their allocations fully because they have insufficient capacity. These members will not be required to reduce their actual production since it was already well under quota. The actual fall in production is therefore likely to be much smaller than the reduction in the notional allocations.
The difference between production and notional allocations has been a persistent problem in the oil market. OPEC+ decisions are usually reported as “changes in production” when they should be reported as “changes in allocations”. It may seem a harmless simplification but it is deeply misleading.
Sometimes, however, the misdirection is intentional. It allows OPEC+ to announce a large headline increase or decrease, and use it to generate a desired market or diplomatic reaction, even though the actual change in production is much smaller.
But it is more technically accurate and analytically useful to report OPEC+ decisions in terms of production allocations and then report changes in actual production separately.
U.S. PETROLEUM INVENTORIES fell by -16 million bbl in the week to September 30. There were reductions in crude (-8 million), gasoline (-5 million), distillate fuel oil (-3 million) and jet fuel (-1 million). Total inventories have depleted by -480 million bbl since the start of July 2020 and are now at the lowest seasonal level since 2004:
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