Tag: epidemic

Best in Energy – 26 April 2022

China’s prolonged lockdowns hit commodity prices

EU explores options for Russian oil sanctions ($FT)

China top planner on the epidemic’s impact (trans.)

Russia/India hold talks on coking coal payments

U.S. gas-fired combined cycle electricity generators

SPR releases – authority, impact and replenishment

Whirlpool financials hit by inflation and slower sales *

* Rapidly rising prices and falling real incomes are encouraging households to postpone purchases of expensive durable goods. Reductions in durables spending often signal a slowdown in the business cycle. According to economist Robert Shiller:

“A recession, for example, is a time when many people have decided to spend less, to make do for now with that old furniture instead of buying new, or to postpone starting a new business, to postpone hiring new help in an existing business, or to express support for fiscally conservative government.” (“Narrative economics”, American Economic Association presidential address, January 2017).

U.S. HOUSEHOLDS overwhelmingly believe now is a “bad time to buy” major durable goods owing to high prices. In the University of Michigan’s latest monthly survey of consumers conducted in March, 57% of respondents said it was a bad time to purchase a major household durable item, down slightly from a record 59% in February, but otherwise the highest level since 1980. Durables are the most cyclically sensitive part of consumer spending. Spikes in the “bad time to buy” measure usually correspond to end-of-cycle recessions or at least mid-cycle slowdowns. In the survey, 42% of respondents said it was a bad time because of high prices, 7% cited uncertainty about the future, 4% said they couldn’t afford it, and only 1% cited interest rates:

FRANKFURT’s heating demand, a proxy for the major population centres of Northwest Europe, has been almost -11% below the long-term seasonal average this winter, with the heating season almost over, which has eased some of the pressure on gas inventories and helped avoid an even sharper spike in prices:

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Best in Energy – 8 April 2022

China struggles to suppress outbreak (trans.)*

China manufacturers hit by outbreak ($WSJ)

EU bans Russia coal imports from August 2022

Japan plans to wind down Russia coal imports

Russia’s oil and diesel export blending ($BBG)

LME stocks fall to multi-decade low ($BBG)

LME zinc inventories set to deplete rapidly

Shell’s hedging related outflows of $7 billion

Russia/Ukraine war and removing sanctions

White House invokes defence production law

Coal buyers scramble for Russia replacements

* Xinhua’s lead article on the coronavirus outbreak in Shanghai illustrates the scale of the challenge, with more than 100,000 cases in the latest outbreak in the megacity, as well as the government’s decision to stick with the “dynamic clearing” zero-coronavirus suppression strategy.

BRENT’s six-month calendar spread has fallen to a backwardation of less than $5 per barrel from a record high of more than $21 a month ago, as the pledge by IEA members to offer 240 million barrels of oil from government-controlled strategic reserves over the next six months has eased traders’ concerns about short-term availability:

U.S. MANUFACTURERS reported new orders for nondefense capital equipment excluding aircraft were up +11% in cash terms in the three months from December to February compared with the same period a year earlier. But growth has decelerated significantly with nominal orders advancing at an annualised rate of only +6.48% in the latest three months, the slowest increase since July 2020, when the economy was emerging from the first wave of the pandemic and lockdowns:

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Best in Energy – 7 April 2022

EU proposes ban on Russian coal from August

China/Australia coal ban as awkward precedent

IEA countries to release further 60 million bbl

Russia/China switch payments to yuan ($BBG)

Shell writes off $5 billion for exit from Russia

Shanghai quarantine facilities expand (trans.)

U.S. ethane consumption is growing

U.S. jet fuel supplies tighten ($BBG)

U.S. PETROLEUM inventories including the SPR rose by +1 million bbl last week – the first increase for 13 weeks and the first increase this year:

U.S. DISTILLATE inventories have risen by a total of +2 million bbl over the two most recent weeks after declining in 9 of the 10 previous weeks by -17 million bbl, as exceptionally high fuel prices incentivise more production and discourage consumption:

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Best in Energy – 28 March 2022

Commodity traders keep Russian exports flowing

OPEC+ officials call for increased understanding

EU carbon market operations – regulator review

IEA defers decision on energy data subscriptions

Germany’s dependence on Russian oil ($BBG)

Japan nuclear restarts win more support ($BBG)

Russia sanctions threaten LNG ship orders ($FT)

U.S. shale output limited by supply chain ($FT)

Freight costs rise in response to diesel ($WSJ)

Middle East diplomatic negotiations ($WSJ)

Shanghai financial district in lockdown (trans.)

Shenzhen relaxes coronavirus controls (trans.)

Battery storage: grid-service and load-shifting

Hedge funds position for yield curve inversion

RECESSION signals are intensifying with the two-to-ten year segment of the U.S. Treasury yield curve within 12 basis points of inverting and in the 88th percentile for all months since 1990. The U.S. economy has been in a formal end-of-cycle recession as defined by the National Bureau for Economic Research for just over 9% of the time since 1990:

U.S. OIL producers have added drilling rigs at a rate of just over 4 per week since the start of the year, essentially the same rate since August 2020, but slower than during the previous recoveries after price slumps in 2015/16 and 2008/09:

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Best in Energy – 25 March 2022

Brent futures margin requirements raised further

Europe’s diesel shortage threatens output growth

U.S. refiners source more fuel oil from Middle East

EU diesel supply vulnerable to Russia ban ($BBG)

EU faces high costs for filling gas storage ($BBG)

China economy disrupted by new epidemic ($BBG)

Russia/Ukraine war cuts fertiliser supply ($WSJ)

Mexico follows Fed in raising interest rates

UAE/Saudi seek to reset U.S. relationship ($FT)

EUROPEAN gas oil and Brent twelve-month calendar spreads are both trading in the 99.9th percentile for all trading days since 2000 as traders anticipate possible severe shortages of both crude and products stemming from Russia’s invasion of Ukraine and U.S./EU sanctions imposed in response:

EUROZONE manufacturers reported a less widespread expansion this month as war in Ukraine and inflation pushes the region’s economy towards a cyclical slowdown. Preliminary readings put the purchasing managers’ index at 57.0, down from 58.2 in February, and the lowest since January 2021, when economy was still gripped by pandemic:

GERMANY’s IFO business expectations index fell to 85.1 in March from 98.4 in February, a level only normally seen during a recession, as employers prepare for the impact of the war and sanctions to be felt on the domestic economy:

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Best in Energy – 21 March 2022

EU divided on whether to embargo Russian oil

India experiences run on retail diesel outlets

EU’s plan to refill gas storage risks price surge

EU’s short-term reliance on Russian gas ($FT)

Saudi Aramco says global oil market is very tight

U.K./Saudi summit and wider political relations

China civilian aircraft crashes with 132 on board

Economic sanctions – measuring effectiveness

Russia/Ukraine war enters attrition phase ($FT)

Russia/Ukraine war enters attrition phase ($WSJ)

China’s epidemic control in rural areas (trans.)

Sri Lanka’s rising energy bill risks default ($BBG)

BRENT futures open interest fell by a record 352 million barrels over the three weeks spanning Russia’s invasion of Ukraine from February 22 to March 15, tumbling to the lowest level since August 2015, as prices spiked higher, volatility increased, margins rose and liquidity dried up:

COAL went from a marginal fuel used in a handful of local areas to become an essential part of England’s pre-industrial economy between 1500 and 1700 – well before the commonly accepted start of the industrial revolution in the later 18th century. By 1700, coal had replaced wood as the dominant fuel for domestic heating in London and most urban centres, and was the main fuel for all manufacturing, including glass-making, salt production, brewing, dyeing, and nonferrous smelting, with the notable exception of iron making:

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Best in Energy – 18 March 2022

[MUST READ] Russia’s military failure ($WSJ)

IEA plan to restrain oil use by 2.7 million b/d

EU plan to replace Russian gas lacks realism

Oil market liquidity falls as volatility rises

Traders hit by rising margin calls ($BBG)

Russia’s oil exporters switch to private sales

IEA/EIA/OPEC divide on war impact ($BBG)

China holds epidemic policy meeting (trans.)*

U.S. shale smaller firms boost output ($WSJ)

Andurand’s path for oil to reach $200 ($BBG)

* The fact China’s top policymaking group held a meeting dedicated to coronavirus control and its impact on daily life and the economy, and chose to publicise it as the top item on all state-controlled websites, suggests the country’s leaders are deeply concerned about the extent and impact of the latest outbreaks.

BRENT’s six-month calendar spread has become highly volatile as traders try to assess whether or not sanctions will disrupt Russia’s exports and how much impact that will have on global oil supplies. In recent weeks, the spread in dollars per barrel has seen 5-10 standard deviation movements on multiple days, which is generating large P&L swings and margin calls:

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