Best in Energy – 13 March 2023

U.S. regulators take over failed Silicon Valley Bank

U.S. central bank acts to shore up liquidity

China/Iran/Saudi diplomatic talks ($WSJ)

Aramco sees oil market “tightly balanced”

Cobalt prices slump on output surge ($FT)

U.S. central bank and a hard landing ($FT)

U.S. INTEREST RATE traders have slashed exectations for future rate rises as the banking system comes under strain. Banks are heavily engaged in maturity and liquidity transformation, funding longer-term loans with shorter-term deposits and other borrowing. The progressive inversion of the yield curve is putting that function under increasing strain. Silicon Valley Bank (SVB), which failed on March 10 after a run by depositors, may have been an outlier. But the intensifying inversion poses challenges for all banks. Following the run on SVB, traders increasingly think concerns about financial stability will constrain future interest rate increases. Futures prices imply benchmark overnight interbank rates will end the year at around 4.50% (the same level as now) rather than 5.50-5.75% (which was expected as recently as March 8):

U.S. DRILLING activity continues to slow. The combined oil and gas rig count fell by -3 in the seven days to March 10. The total number of active rigs has fallen in 9 of the last 14 weeks by a total of -38 rigs (-5%) since early December:

HEDGE FUND and other money manager positions in the six major petroleum futures and options contracts on February 21, 2023:

Best in Energy – 8 February 2023

Power sector emissions near tipping point

(see full IEA report on electricity markets)

Russia oil sanctions enrich intermediaries

Cobalt prices fall on emerging oversupply

Container trade left with massive surplus

U.S. gasoline consumption falls ($FT)

U.S. coal-fired generator retirements

U.S. INTEREST RATE traders expect the central bank to increase its target fed funds rate by two more quarter-points before July 2023 reaching 5.00-5.25% up from 4.50-4.75% at present. The forecast has increased by a quarter-point following stronger than expected employment data for January. The interest rate path has been repeatedly revised upward over the last year as inflationary pressures have proved more persistent than expected: