Best in Energy – 5 April 2023

[MUST READ] Cobalt, artisan mining and batteries

India’s power generation growth fastest since 1990

Iraq’s northern oil producers plan to restart exports

Russia’s distillate exports re-routed to Middle East

OPEC⁺ market power rises as U.S. shale decelerates

California’s logistics hub signals downturn ($WSJ)

EU/China summit attempts to de-escalate tensions

SINGAPORE’s inventories of distillate fuel oil are accumulating as the market moves into surplus. Stocks have risen in 12 of the last 15 weeks by a total of +3 million barrels. Inventories are still -1.5 million barrels (-14% or -0.83 standard deviations) below the prior ten-year seasonal average but the deficit has narrowed from -3 million barrels (-31% or -1.35 standard deviations) on December 18:

U.S. DURABLE GOODS orders for nondefense capital equipment other than aircraft were just +4.2% higher in February 2023 than in February 2022. But orders are measured in nominal terms so given rapid inflation the real volume is falling. Nominal orders have been flat since the third quarter of 2022 confirming a slowdown in business investment is underway:

Best in Energy – 6 March 2023

Automakers want to secure EV supply chain

China focuses on coal’s role in energy security

EIA blames oil blending for adjustment factor

EU firms relaxed about U.S. climate subsidies

U.S. downturn confined to tech sector? ($WSJ)

India’s loss-making Mundra power plant ($BBG)

EUROPE’s gas futures prices continue to slide despite a blast of colder weather across the northwest this week reflecting the high level of inventories. Front-month futures prices closed below €45 per megawatt-hour on March 3 for the first time since August 2021:

U.S. NON-MANUFACTURING firms reported a solid increase in activity in February. The ISM non-manufacturing index stood at 55.1 (40th percentile for all months since 1997) in February, little changed from January, but up from 49.2 (7th percentile) in December. The low December reading is starting to look like an anomaly. Service providers and other non-manufacturing businesses are reporting healthier conditions than their counterparts in manufacturing and freight:

U.S. OIL DRILLING activity continued to decelerate with the number of active rigs down -8 to 592 over the week ending on March 3. The oil-directed rig count has fallen in 10 of the last 13 weeks by a total of 35 rigs (-6%):

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:

Best in Energy – 6 December 2022

Renewables deployment accelerated by energy crisis

North Carolina substations in sophisticated sabotage

Oil tankers in queue to transit Turkish straits ($FT)

France prepares for tight power supplies next week

New England grid outlines winter reliability plan

EU retail sales fall with economy in recession ($WSJ)

EU plan for gas price cap distracts from real problem

U.S. jet fuel consumption below pre-pandemic level

BRENT’s six-month calendar spread has collapsed to a backwardation of just 67 cents per barrel (54th percentile for all trading days since 1990) from $8 (98th percentile) at the start of November. Month-to-month spreads are flat through April 2023. Traders anticipate crude supplies will remain comfortable through the first few months of next year because: (a) the EU/G7 price cap on Russia’s exports was set at a relatively high level; (b) policymakers have signalled a relaxed approach to enforcement (c) refiners have boosted purchases and inventories ahead of the price cap’s introduction; and (d) the slowing global economy is expected to dampen oil consumption:

Best in Energy – 14 November 2022

Saudi Arabia widens diplomatic relationships ($BBG)

U.S. retailers push back against price increases ($BBG)

China says pre-winter coal stocks comfortable (trans.)

China underground gas storage for Jīng-Jīn-Jì (trans.)

Indonesia explores early retirement of coal-fired plant

China’s iron ore prices bounce on non-residential use

Western Interconnection’s rising reliability challenge

U.S/China presidents try to stabilise poor relationship

U.S./China leaders to meet at G20 ($FT)

OPEC⁺  and the stabilisation of oil prices

U.S. OIL PRODUCERS increased the number of rigs drilling for oil to 622 on November 10 up from 610 two weeks earlier. Drilling increased significantly for the first time since July. The number of active rigs has rebounded from a pandemic low of just 172 in August 2020 and is nearing the pre-pandemic level of 683 in early March 2020.

But the resumption has been much slower than after the two previous downturns. The rig count has risen by a total of +450 (+3.8 per week) over the 117 weeks since August 2020 compared with an increase of +544 (+4.6 per week) at the same point after the last cyclical low in 2016 and +885 (+7.6 per week) after the cyclical low in 2009:

Best in Energy – 14 September 2022

EU plans significant energy market overhaul

China set for turnover in economic officials

Poland to freeze household electricity prices

Equinor completes rapid sale of Russia assets

U.S. households’ real incomes are flat ($WSJ)

U.S. power generators’ carbon intensity falls

Expert interpretation of the Soviet Union

U.S. INTEREST RATE traders expect the central bank to boost its target federal funds rate to 4.25-4.50% by April 2023 up from 2.25-2.50% at present as officials try to bring inflation back towards their long term target. Inflation has proved faster and more persistent than anticipated implying higher interest rates and a greater probability of a hard-landing for the economy:

U.S. SERVICES prices increased at an annualised rate of +7.7% in the three months to August. Services inflation is a proxy for underlying price pressures in the economy because services account for more than 60% of consumer spending and are labour-intensive rather than energy or commodity-intensive. Service sector inflation has decelerated from a peak of +9.9% in the three months to June but remains more than three times faster than the central bank’s long-term target of a little over 2% per year:

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