Best in Energy – 23 September 2022

U.S. central bank signals a hard landing ($WSJ)

U.S. trucking – possible decarbonisation pathway

China’s refiners anticipate higher exports ($BBG)

India plans more coal generation by 2030 ($BBG)

Asia LNG sales stall as prices hit resistance ($BBG)

ADNOC chief sees little room to manoeuvre in oil

Taiwan says blockade would be act of war

FedEx to cut costs and raise parcel prices ($WSJ)

U.S./China relations –Asia Society speech (trans)

EUROZONE manufacturers reported a further deterioration in business activity this month according to preliminary results from the purchasing managers’ survey. The composite activity index fell to 48.5 in September (24th percentile) down 49.6 in August (28th percentile) and 49.8 in July (29th percentile). The region’s economy is sliding into recession – even before expected energy shortages this winter:

U.S. INITIAL CLAIMS for unemployment benefits are still running at very low rates, with just 213,000 new claims filed last week on a seasonally adjusted basis. Core inflation is unlikely to fall to the Federal Reserve’s target of a little over 2% per year with the labour market this tight – which explains the central bank’s aggressiveness in raising interest rates:

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Best in Energy – 15 July 2022

White House downplays hopes for more oil

Middle East imports more Russian fuel oil

Japan plans reactor restarts before the winter

United Kingdom heads for winter crisis ($BBG)

Germany is moving into a recession ($BBG)

ERCOT confident will avoid blackout ($BBG)

U.S. household finances and inflation ($WSJ)

Russia/NATO conflict is test of resolve ($BBG)

Central banks turn hawkish on inflation

U.S. CENTRAL BANK is expected to raise short-term interest rates to 3.50-3.75% by February 2023 up from 1.50-1.75% at present to curb inflation. From the second quarter of 2023, however, policymakers are expected to start reducing interest rates as the economy slows and inflation decelerates:

U.S INTEREST RATE traders anticipate a recession has become virtually certain following the continued acceleration of inflation. The yield curve spread between 2-year and 10-year maturities is now in the 98th percentile for all months since 1990:

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Globalisation, commodity prices and inflation

Research note originally published in February 2008 when I was working as a market analyst at Sempra Metals. The commodity markets were in the final stages of the super-cycle (which peaked in July 2008) and early stages of a U.S. recession (activity had actually peaked in Dec 2007 but the recession was not yet recognised by most commentators or announced by the U.S. National Bureau of Economic Research until Dec 2008). The note is interesting in retrospect as an example of “real time” analysis around a turning point in the economy and commodity markets:

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 – 30 June 2022

Uniper appeals for state support as gas crisis worsens

India/Russia/China trilateral trade of cement for yuan

Energy conservation as response to Ukraine war ($FP)

Tokyo scrapes through heatwave and power shortage

Vietnam to cut gasoline import tariffs to limit inflation

U.S. central bank refocuses on inflation control ($WSJ)

U.S. refinery capacity fell in both 2020 and 2021

CHINA’s manufacturers reported a slight increase in business activity this month after lockdowns drove a contraction in April and May but it was not very widespread. The purchasing managers’ index rose to 50.2 in June (31st percentile for all months since 2011) up from 49.6 in May (10th percentile) but it was still down from 50.9 in June 2021 (59th percentile):

U.S. PETROLEUM INVENTORIES including the strategic petroleum reserve fell -1 million bbl to 1,679 million bbl last week. Inventories have declined in 77 of the last 102 weeks by a total of -439 million bbl since the start of July 2020. Stocks are now at the lowest level since October 2008:

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Best in Energy – 26 May 2022

U.S. central bank cannot drill for more oil ($BBG)

China’s coal  use falls even as production rises

India to continue importing cheap Russian crude

India sources more coal imports from Indonesia

EU/Russia find compromise over gas payments

LNG market grapples with multiple uncertainties

Urban heat islands in Europe

U.S. PETROLEUM inventories depleted by -5 million bbl to 1,686 million bbl last week. Stocks have fallen in 73 of the last 99 weeks by a total of -432 million bbl since the start of July 2020:

U.S. DISTILLATE inventories increased by +2 million bbl to 107 million bbl last week – the second consecutive weekly increase. Stocks have probably reached their seasonal low and are rising as normal at this point of the year as refineries boost crude processing to make more gasoline. But they are still at the lowest seasonal level for more than 15 years:

U.S. DISTILLATE inventories on the East Coast (PADD 1), where shortages have been most acute, fell by another -1 million bbl to 22 million bbl last week:

U.S. GASOLINE inventories fell -0.5 million bbl to 220 million bbl last week – the lowest seasonal level since 2014:

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Best in Energy – 17 May 2022

China’s coal futures liquidity dries up

Texas generators tripped and strained grid

Iraq tries to retain Western oil investment

New traders handle Russian exports ($BBG)

Central bank emergency liquidity provision

FOOD PRICES and famine in ancient Rome:

“The price of grain is linked essentially with the concept of ‘famine’. As in the modern world, so in the ancient, ‘famine’ is a concept with class and financial connotations. The lowly and the poor in society had no reserves either of food or money and therefore suffered immediately as a result of a rise in the cost of basic essentials. The rich and upper classes on the contrary rarely experienced actual hunger during a famine because of their financial resources and even private grain reserves. If the shortage of grain persisted, the rich might suffer economically by having to use more of their wealth, or their own grain, but they did not starve. The poor did, not necessarily because there was a total lack of grain available, but rather because the current price of grain had risen beyond what they could normally afford to pay, whether because of crop failure, hoarding or speculation by dealers.” ― The Corn Supply of Ancient Rome, Rickman, 1980

U.S. GASOLINE and diesel prices are much higher than would be expected based on the price of crude alone, reflecting the shortage of refining capacity. Once increases in wages are taken into account, however, the average gasoline pump price of $4.44 per gallon this month is well below the peak of $6.17 per gallon in June 2008. In real terms, prices are only in the 81st percentile for all months since 1994: