Best in Energy – 30 November 2022

Guangzhou and other cities see more protests, arrests

France says most energy use reduction due to weather

Europe accelerates deployment of domestic heat pumps

(see also IEA report on future of heat pumps)

Europe increases LNG imports from Russia ($BBG)

EU struggles to agree caps on oil and gas prices ($FT)

Europe’s energy price controls cost €700 billion ($BBG)

Los Angeles port loses cargo share ($BBG)

CHINA’s official Xinhua news agency and other government-run sites are running multiple stories and commentaries emphasising epidemic controls must be applied with “softness”, “greater precision”, ensuring daily life and healthcare continues.  There has been a marked change of tone from the previous military-themed rhetoric and analogies to battling the epidemic, with greater focus on resuming as much normality as possible. Like other governments facing widespread social unrest, China appears to be pursuing a mixed strategy of rolling up protestors, intensifying street policing, while trying to make selective concessions to keep the majority of the population in line by relaxing epidemic controls to reduce their social and economic costs.

BRENT’s calendar spreads for the first part of 2023 have slumped from a steep backwardation at the start of November close to contango as the end of the month nears. The nearest to deliver January-February spread is no longer a useful indicator as the January contract nears expiry and there is insufficient liquidity to make the price representative. But the more active February-March and March-April spreads are now trading close to flat from backwardations of around $1.50 per barrel at the start of the month.

Refiners and traders seem to have accelerated purchases ahead of the introduction of the planned G7 price cap on Russia’s crude exports from early next month to protect themselves against any possible disruption. Concern about the impact likely drove up prices and spreads in September and October.

But the cap itself now appears likely to be set at a relatively high level with relaxed enforcement, at least initially. The result is a marked softening in the market. At the same time, the business cycle continues to weaken across most of Europe and Asia, dampening crude demand. All of this is weighing on prices and spreads for nearby futures contracts with deliveries in early 2023:

Best in Energy – 28 November 2022

Brent futures prices revert to contango nearby

China cities see small but widespread protests

China lockdowns spark public protests ($BBG)

China tries to soften epidemic controls (trans.)

U.S. Treasury eases oil sanctions on Venezuela

Container freight rates slump ($WSJ)

Oil prices and the G7 price cap ($FT)

Oil prices and the G7 price cap ($WSJ)

BRENT’s six-month calendar spread has softened to a backwardation of less than $1 per barrel compared with more than $9 at the end of September and a peak of almost $22 in early March shortly after Russia’s invasion of Ukraine. The spread between January and February 2023 has moved from backwardation into a small contango. Refiners and traders increased buying ahead of the planned introduction of the price cap in case it disrupts Russia’s crude exports, creating at least a temporary pause in new buying and putting pressure on the calendar spreads for nearby months:

THE NETHERLANDS was the fourth-largest gas consumer in the European Union in 2021 accounting for 11% of the total. The country’s gas consumption was down almost -33% in October 2022 compared with the prior ten-year seasonal average as a result of above-average temperatures, high prices, and energy conservation measures to reduce reliance on imported gas from Russia following the invasion of Ukraine:

CONTAINER shipping costs were down by more than -50% in November 2022 compared with the same month in 2021, as freight volumes fell and supply chain delays eased:

Best in Energy – 11 October 2022

Europe still faces shortage of gas supplies

U.S. senator urges freeze on Saudi relations

(see also senator’s press statement)

Global refinery capacity shortage

China intensifies post-holiday lockdowns

Coal prices retreat as shortage fears recede

EU explores more emergency energy rules

Iraq cannot afford to cut oil output ($WSJ)

Computer shipments drop sharply ($WSJ)

INDIA’s electricity transmission system is in a much healthier condition than this time last year. Power grid frequency has been kept much closer to its target of 50.0 Hertz indicating a much closer and more stable balance between generation and load. Frequency has only fallen below the acceptable threshold of 49.9 Hertz 3.9% of the time in the first ten days of October compared with 14.4% of the time in the same period last year.

Cooler temperatures have helped by reducing air-conditioning and refrigeration demand. Temperatures were -2.5°C below the long-term seasonal average in the first ten days of October compared with +1.0°C above average in the same period last year.

Coal inventories are also more plentiful ensuring generators can remain online. Stocks at power plants are currently 24.7 million tonnes compared with just 7.3 million tonnes at the same point last year:

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Best in Energy – 7 October 2022

U.K. electricity winter reliability forecast

U.S./Saudi standoff over oil policy ($FT)

White House fury with oil output cut ($BBG)

France outlines plan for “energy sobriety”

Nord Stream inquiry confirms sabotage

Texas electricity market and volatility

Houston and energy system transition

Luck more important than talent ($WSJ)¹

¹ Luck plays a more important role in determining individual success than talent, according to the study authors. But individuals have to be ready and open to grasp opportunities. The best strategy to maximise the probability of success is therefore “expose, explore, exploit,” which seems sound advice.

GERMANY’s industrial production was down -4.5% in the three months from June to August compared with the same period in 2019 before the coronavirus epidemic. The economy is struggling with multiple shocks stemming from Russia’s invasion of Ukraine, sanctions, gas shortages, higher energy and raw materials prices, and persistently sluggish growth in China:

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Best in Energy – 10 August 2022

European retailers cut lighting and hours to save energy

U.S. electricity use forecast to rise to record high in 2022

Microsoft cuts travel and other expenses ($WSJ)¹

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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Best in Energy – 29 July 2022

EU’s bilateral emergency energy sharing deals

U.S. refiners say fuel consumption still strong

Japan’s energy saving template for Europe

U.S./China leaders call – White House view

U.S./China leaders call – China view (trans.)

Global coal use rebounds to previous peak

German city turns off lights and hot water

U.S. REAL FINAL SALES to private domestic purchasers were unchanged in the second quarter after advancing at an annualised rate of +3.0% in the first, confirming the economic slowdown that has been evident for some time. Real final sales to private domestic purchasers (RFSPDP) strips out the impact of inventory changes, government spending and trade to focus on the underlying behaviour of households and businesses and is therefore the best indicator of underlying economic momentum. RFSPDP was growing at the slowest rate since the first wave of the pandemic in 2020 and before that the recession of 2008/09:

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Best in Energy – 30 June 2022

Uniper appeals for state support as gas crisis worsens

India/Russia/China trilateral trade of cement for yuan

Energy conservation as response to Ukraine war ($FP)

Tokyo scrapes through heatwave and power shortage

Vietnam to cut gasoline import tariffs to limit inflation

U.S. central bank refocuses on inflation control ($WSJ)

U.S. refinery capacity fell in both 2020 and 2021

CHINA’s manufacturers reported a slight increase in business activity this month after lockdowns drove a contraction in April and May but it was not very widespread. The purchasing managers’ index rose to 50.2 in June (31st percentile for all months since 2011) up from 49.6 in May (10th percentile) but it was still down from 50.9 in June 2021 (59th percentile):

U.S. PETROLEUM INVENTORIES including the strategic petroleum reserve fell -1 million bbl to 1,679 million bbl last week. Inventories have declined in 77 of the last 102 weeks by a total of -439 million bbl since the start of July 2020. Stocks are now at the lowest level since October 2008:

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Best in Energy – 27 June 2022

Russia/EU clash over routine gas pipeline maintenance

EdF/Engie/Total call for immediate energy conservation

U.S. shale producers turn to refracturing existing oil wells

Germany’s chemicals firms contemplate shutdown ($WSJ)

Bank for International Settlements annual economy review

Southwest Airlines’ fuel hedging ($FT)

U.S. OIL AND GAS rig count rose +13 to 753 last week as higher prices spur exploration and production companies to contract more drilling teams. The number of active rigs has climbed by +509 from the cyclical low in August 2020 and is only -40 below the pre-pandemic level in March 2020. The number of active oil rigs is still -88 below the pre-pandemic level but gas rigs are already +48 above the March 2020 level.

Oil and gas drilling is exhibiting a fairly normal cyclical recovery, though it is unfolding slower than other recent recoveries because some of the larger exploration and production companies have been constraining drilling and production programmes to keep prices high and boost returns to shareholders:

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