BRENT’s six-month calendar spread is trading in a backwardation of $1.80 (71st percentile for all days since 1990). The spread has tightened from a contango of $0.65 (34th percentile) since December 9 as expectations for a soft-landing in the global economy have increased. But it is well below levels before Russia’s invasion of Ukraine, implying the market is comfortably supplied despite sanctions on Russia and output restraint by OPEC⁺ and U.S. shale firms:
UN climate targets start to stretch to +1.7°C ($WSJ)
U.K. energy crisis hits poorer households hard ($FT)
Europe’s electricity networks brace for winter ($FT)
CHINA was historically a collection of macro-regional economies, with strong transport and commercial links within each region, but much weaker links between regions. The country’s rapid industrialisation and urbanisation since reform and opening in 1978-1980 has led to much more integration at national level, but regionalism remains persistent.
¹ Food and energy shortages have always been about prices and affordability rather than physical supplies and availability. Higher-income and wealthier households will always find ways to put food on the table and heat their homes, it is lower-income and poorer households that lack financial resources that are unable to cope and hit hardest (“Corn supply of ancient Rome”, Rickman, 1980).
SOUTHERN CALIFORNIA’s ports are experiencing a sharp drop in container traffic reflecting contentious labour negotiations and the threat of a strike as well as the slowdown in global merchandise trade and efforts by U.S. manufacturers and distributors to cut excess inventories. Combined container traffic through the neighbouring ports of Los Angeles and Long Beach was just 0.84 million twenty-foot equivalent units (TEUs) in October, down from 1.07 million TEUs in the same month in 2021, and the lowest for the time of year since the recession of 2009:
BRENT spot prices and especially calendar spreads have softened significantly and are now trading at or below levels prevailing immediately before Russia’s invasion of Ukraine. China’s coronavirus outbreaks and lockdowns, signs of a business cycle slowdown in Europe and North America, and the massive offer of 240 million barrels from strategic stocks by the United States and its allies have all weighed on futures near to expiry:
BRENT futures for delivery in July 2022 – the impact of the business cycle and epidemic waves on oil prices:
U.S. GASOLINE and diesel prices at the pump are still elevated despite the reduction in crude futures prices as fuel inventories remain low:
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