U.S. PETROLEUM INVENTORIES including the strategic reserve fell by -6 million bbl last week. Petroleum inventories have depleted in 88 of the last 120 weeks by a total of -486 million bbl since the start of July 2020:
U.S. DISTILLATE FUEL OIL inventories have fallen in 70 of the last 120 weeks by a total of -71 million bbl since July 2020. Stocks are at the lowest seasonal level since the U.S. Energy Information Administration began publishing weekly data in 1982:
EUROPE’s gas futures prices for November and December have continued to fall as regional storage facilities near maximum capacity. There is enough gas in stock to ensure supplies through the first half of the winter. But the risk to supplies in the second half and during next year’s refill season is keeping prices for 2023 high:
NORTHWEST EUROPE’s benchmark gas futures contract for deliveries in January 2023, the heart of next winter, has fallen to less than €200 per megawatt-hour from a peak of €345 in late August. Higher inventories in seasonal storage have reduced the probability about stocks running out. Plans for significant voluntary and mandatory reductions in gas and electricity consumption and the increasing probability of a region-wide recession will also lessen the pressure on stocks in the event gas supplies from Russia are disrupted:
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China’s climate is getting hotter and wetter (trans.)
China’s ultra-deep Tarim basin oil and gas wells (trans.)
¹ Most major corporations are starting to restrict travel and other routine expenses spending as they try to cope with rising inflation while maintaining earnings in line with forecasts and analysts’ expectations. Business spending reductions will flow through into slower growth in passenger aviation, hospitality and other business-related services. Spending controls will therefore amplify the broader business cycle slowdown that is already underway.
EUROPE’s major rivers are running very low as a result of the prolonged drought and temperatures well above normal. Recorded water depth on the Rhine at the Kaub gauging station has fallen to just 48 centimetres, the lowest seasonal level for more than a quarter of a century by a wide margin, severely restricting barge freight:
U.S. RETAIL GASOLINE prices have fallen for eight consecutive weeks by a total of -96 cents per gallon (-19%) since June 13. Retail diesel prices have declined for seven consecutive weeks by a total of -82 cents per gallon (-14%) since June 20.
Fuel-price reductions are mostly explained by the decline in international crude prices. Refining margins remain higher than before Russia invaded Ukraine. Diesel prices remain elevated compared with gasoline as a result of the global diesel shortage.
In the last two months, lower crude and fuel prices have been driven by the slowdown in the economy (actual and expected) and the pass-through from former price increases which have enforced changes in household and business behaviour and dampened consumption. In the next few months, if lower prices are sustained, they will relieve some pressure on household budgets and business operating costs, ease recessionary forces, and buy back some of the demand that was lost:
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EU struggles to balance energy security and transition ($WSJ)
U.S./EU responses to energy security and transition challenges
U.S. MANUFACTURERS reported a further slight deceleration in growth last month, with the ISM purchasing managers’ index slipping to 52.8 in July (50th percentile for all months since 1980) from 53.0 in June (53rd percentile). New orders fell for the second month running, slightly faster in July (48.0, 14th percentile) than June (49.2, 17th percentile), implying business activity will slow further over the next few months:
U.S. DISTILLATE CONSUMPTION has begun to fall in line with the deceleration in manufacturing activity. The volume of distillate supplied was down -0.4% in March-May compared with the same period a year earlier. Distillates are the most cyclically sensitive part of the oil market, so the business cycle slowdown is filtering through into lower fuel use, part of the market rebalancing process:
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EU28 GAS STOCKS are still accumulating rapidly and have risen above the pre-pandemic seasonal average, despite recent concerns about a potential disruption of pipeline supplies from Russia. EU28 gas inventories are currently at 751 TWh compared with a pre-pandemic five-year average of 719 TWh. Stocks have been accumulating at +5 TWh per day, in line with the seasonal norm. Inventories are on course to reach 985 TWh by end of September, slightly above the pre-pandemic average of 983 TWh:
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BRENT’s front-month futures price fell -$10.73 (-9.5%) on July 5. The decline came on a day with little new information about production or consumption but traders seemed to anticipate a higher probability of an economic slowdown. In percentage terms, the decline was the third-largest since July 2020 and 4.1 standard deviations away from average since 1990:
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U.S. DISTILLATE FUEL OIL supplied to the domestic market averaged 3.68 million b/d in the four weeks ending on June 24 down from 3.88 million b/d in the same period last year. The volume supplied is an estimate subject to considerable short-term errors and volatility so it should be interpreted with extreme caution. But the reduction of -0.2 million b/d is relatively large and would be consistent with the onset of an economic slowdown:
EUROZONE MANUFACTURERS reported a much narrower increase in business activity this month as inflation and sanctions push the region’s economy towards recession. The purchasing managers’ index slid to 52.1 in June (47th percentile for all months since 2006) down from 54.6 in May (65th percentile) and 63.4 in June 2021 (a record):
U.S. REAL PERSONAL INCOMES less transfer payments (PILT) were up by just +1.8% in May compared with the same month a year earlier. PILT is one of the indicators monitored by the National Bureau of Economic Research’s Business Cycle Dating Committee to determine peaks and troughs in the cycle. PILT growth has been slowing since the start of the year and is now in only the 30th percentile for all months since 1980, implying the economy is losing momentum as inflation outstrips earnings:
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U.S. GASOLINE prices at retail level and adjusted for wages are now at the highest since 2013. Wage-adjusted gasoline prices are in the 94th percentile for all months since 1994, up from the 60th percentile at the end of 2021. At this level, demand destruction should be evident within the next few months:
FREEPORT LNG’s prolonged disruption is expected to reduce exports from the United States to Europe significantly and tighten the European gas market. Reduced pipeline flows from Russia are likely to worsen the shortfall.
The premium for gas delivered in Northwest Europe rather than at Louisiana’s Henry Hub next month has more than doubled to €109/MWh up from €50 on June 7.
Europe’s summer-winter calendar spread from July 2022 to January 2023 has reverted to a backwardation of almost €3/MWh from a contango of more than €14 on June 8 as traders anticipate the market will be tighter:
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U.S. FEDERAL RESERVE increased its target range for the federal funds rate by +75 basis points to 1.50-1.75%, the largest increase since 1994. In real terms, monetary policy has become increasingly stimulative because inflation has risen faster than rates. The real interest rate had fallen to -5.25% in May 2022 compared with -3.75% in May 2021 and +0.38% in May 2019. The large rise was designed to signal the central bank’s determination to bring inflation under control as well as to start making real interest rates less stimulative:
U.S. PETROLEUM INVENTORIES including the strategic reserve depleted by -3 million bbl to 1,682 million bbl last week. Inventories have fallen in 75 of the last 102 weeks by a total of -435 million bbl since the start of July 2020. Stocks are at the lowest seasonal level since 2008:
U.S. DISTILLATE INVENTORIES rose by +0.7 million bbl to 110 million bbl last week. East Coast stocks increased by +1.2 million bbl to 27 million bbl. But total stocks remain -27 million bbl (-19%) below the pre-pandemic five-year seasonal average. Although inventories have started to accumulate seasonally the deficit is not narrowing because refineries cannot make enough fuel to rebuild stocks:
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