EUROPE’s gas prices continue to slide as traders anticipate a record carry over of inventories at the end of winter 2022/23. Futures prices for deliveries in March 2023 fell to just €55 per megawatt-hour on January 26 from €110 on December 19 and €177 at the start of the winter season on October 3. Prices are falling to encourage more consumption, principally from energy-intensive industrial users and power generators, to ensure there is more storage space left to absorb excess production in summer 2023:
U.S. GROWTH stalled in the fourth quarter of 2022. Real final sales to private domestic purchasers (FSPDP), a measure excluding volatile changes in inventories, trade and government spending, increased at an annualised rate of just +0.2% in the fourth quarter, slowing from +1.1% growth in the third quarter, and +2.6% a year earlier. Real FSPDP advanced at the slowest rate since the first wave of the pandemic in 2020 and before that the recession in 2009.
Business inventories increased rapidly between October and December contributing +1.46 percentage points to reported output growth in the fourth quarter of 2022. Inventory accumulation was probably unplanned as sales were lower than expected. Large inventory changes are normally reversed within one or two quarters. The accumulation during the fourth quarter of 2022 is likely to be followed by efforts at depletion which will make a negative contribution to reported output growth in the first and second quarters of 2023:
¹ PJM’s post-event study for winter storm Elliot on December 24 is worth reading in full and confirms the major problem was the failure of many generators to respond to instructions from the grid because of a failure to start up or secure enough fuel (principally gas). Generators were unavailable even though they had been given repeated warnings of an extreme weather event for several days beforehand and told to prepare for a plunge in temperatures. In many cases, generators provided less than 1 hour of notice they would not be available. If generators cannot be depended upon to respond to instructions they cannot be considered firm dispatchable power for reliability purposes.
In response, PJM was forced to initiate a series of relatively extreme emergency measures to protect the transmission system, including voltage reductions and an order for flat-out maximum generation from units that were available.
U.S. PETROLEUM INVENTORIES including the strategic reserve totalled 1,599 million barrels on January 6, the lowest seasonal level since 2004. Stocks have fallen by -185 million barrels over the last 12 months and are down by -518 million barrels from their peak in mid-2020 as production has persistently fallen below consumption:
EUROPE’s gas inventories are rapidly nearing a record high for the time of year following warmer than normal temperatures and reductions in industrial consumption. EU28 inventories were 937 TWh on January 9 closing in on the seasonal record of 944 TWh set in winter 2019/20.
Stocks were +247 TWh (+36% or +2.37 standard deviations) above the prior ten-year seasonal average up from a surplus of +92 TWh (+10% or +0.86 standard deviations) at the start of the winter season on October 1. The storage surplus is still increasing.
Inventories are projected to reach a post-winter low of 591 TWh with a probable range of 460 TWh to 749 TWh. If that proves correct, storage facilities would end the winter 52% full, with a likely range from 41% to as much as 66%:
¹ Gas has been transported and stored in bags or balloons by poorer, often rural, customers without connection to grid supplies across Asia for some time. Specialised gas containers are relatively expensive. Photo agency Alamy has a photograph of a cyclist trailing a gas-filled “balloon” in China’s Shandong province in 2014. Don’t try this at home!
EUROZONE MANUFACTURERS reported business activity declined for the sixth month running in December but the deterioration was less widespread than in November and October. The eurozone manufacturing purchasing managers’ index was at 47.8 (21st percentile for all months since 2006). The index remained well below the 50-point threshold dividing expanding activity from a contraction. But declines were less widespread than November when the index was at 47.1 (17th percentile) and October at 46.4 (13th percentile):
U.S. CRUDE PRODUCTION including field condensates rose by +69,000 b/d to 12.381 million b/d in October 2022. The increase came entirely from onshore production in the Lower 48 states, most of which is from shale. Production has been up year-on-year by an average of around +630,000 b/d (+5.7%) in the last 12 months:
U.S. WELL DRILLING shows signs of having hit a peak and starting to fall as the sector responds to lower prices. The number of active rigs targeting oil or gas has fallen in the most recent two weeks and is no higher than at the end of October. As a result, the rig count has increased by an average of just +1.0 per week in the last 13 weeks:
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:
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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