Best in Energy – 24 November 2022

China’s coronavirus cases hit record high

Russia tanker fleet too small to avoid price cap

China/India slow purchases of Russian crude

United States to relax Venezuela oil sanctions

Europe hit by high gas prices for years ($FT)

BRENT’s six-month calendar spread fell to a backwardation of just over $2 per barrel on November 23, down from almost $9 a month earlier, and a high of almost $22 in early March, shortly after Russia invaded Ukraine. The spread has been easing consistently for a month and has fallen to its lowest level since December 2021. The business cycle downturn is expected to offset production restraint by OPEC⁺ and U.S. shale firms while traders anticipate Russia’s oil exports will continue flowing despite sanctions and the planned price cap:

Best in Energy – 23 November 2022

[MUST READ] U.S. Treasury publishes regulations for Russia price cap

Vitol chief says price cap will divert flow to small traders

Iran’s leaders struggle to reach out to moderates ($WSJ)

South California vessel queue dissipates  ($WSJ)

China’s coronavirus controls are multiplying

China’s renewable generation hits record high

U.S./Canada gas flows support winter reliability

Europe’s business confidence slumps ($FT)

Selective self-deception is an important leadership skill, especially in politics and diplomacy, but sometimes leaders say things they must know to be untrue, and I’m reminded of the exchange between Alice and the White Queen in Lewis Carroll’s “Through the Looking-Glass”:

“I can’t believe that!” said Alice.

“Can’t you?” the Queen said in a pitying tone. “Try again: draw a long breath, and shut your eyes.”

Alice laughed. “There’s no use trying,” she said: “one can’t believe impossible things.”

“I daresay you haven’t had much practice,” said the Queen. “When I was your age, I always did it for half-an-hour a day. Why, sometimes I’ve believed as many as six impossible things before breakfast.”

BRENT’s front-month futures price is trading close to the average since the start of the century once adjusted for inflation. The current price of around $87 per barrel is in the 54th percentile for all months since 2010 and the 47th percentile for all months since 2000:

Best in Energy – 22 November 2022

China hit by worst coronavirus outbreaks since April ¹

European Union proposes gas price cap, without figures

Australia’s gas consumers try to avoid high export price

Saudi Arabia boosts renewable power to export oil ($FT)

U.S./India diplomatic and economic relationship

¹ China has reported severe coronavirus outbreaks in megacities across the entire country, including Beijing and Tianjin in the northeast, Guangzhou in the southeast, and Chongqing in the southwest. Xinjiang in the northwest has been under semi-permanent lockdown for months. The central government’s lockdown and suppression strategy is failing to control transmission and disrupting the entire economy. But there is still no sign of an exit strategy that would enable the country to live with the virus, worsening the economic and oil consumption outlook for 2023.

BRENT calendar spreads for the first half of 2023 have softened significantly as traders anticipate a business cycle slowdown and China’s postponed re-opening from coronavirus will relieve some pressure on crude supplies and inventories:

Best in Energy – 11 November 2022

China’s leaders reiterate and adapt covid strategy (trans.) ¹

China trims coronavirus quarantine and contact tracing

China’s commentators question covid strategy ($BBG)

Pakistan to ration gas supplies as EU absorbs more LNG

U.S. diesel prices climb as inventories dwindle ($NYT)

U.S. diesel prices rise with stocks low ahead of winter

Global insurers press for more details on oil price cap

¹ The Politburo Standing Committee special study session on epidemic control is top news across all government-controlled media. Reverse engineering the official commentary, top leaders seem anxious to counter political and social fatigue with repeated lockdowns, reinforcing the current zero-covid strategy in the short term despite its rising costs, while also searching for a way out via improved vaccination rates and the development of new vaccines and therapeutic drugs.

U.S. SERVICE SECTOR prices increased at an annualised rate of +7.8% in the three months to October, more than three times faster than the central bank’s target, ensuring that interest rates are likely to continue rising:

BRITAIN’s economy entered a recession during the third quarter with real gross domestic product declining in three out of four months between June and September. So far the downturn has been led by manufacturing but is likely to spread to construction and services:

Best in Energy – 3 November 2022

Africa’s governments demand fair energy transition

U.S. gas production and injections drive prices lower

China’s gas consumption growth stalls in 2022

Australia’s mining companies explore renewables

Saudi Arabia’s more independent foreign policy ($FA)

South Africa’s newest coal generator damaged ($BBG)

Aero-engine makers struggle to meet demand ($FT)

Canada excludes China from lithium sector ($FT)

China’s quarantine system – an inside view ($FT)

U.S. INTEREST RATE TRADERS expect the Federal Reserve to raise its federal funds target for longer to peak at a higher level and sustain them at a higher rate than before, following a warning by the central bank’s chief. Policy-controlled interest rates are expected to continue rising until they peak at 5.00-5.25% in May 2023, up from 3.75-4.00% at present, and still be at 4.00-4.25% at the end of 2024:

U.S. PETROLEUM INVENTORIES including the strategic reserve fell by -3 million barrels in the week to October 28. Stocks have depleted in 90 of the last 122 weeks by a total of -494 million barrels since the start of July 2020:

Best in Energy – 28 October 2022

EU gas consumption down by 14-15% in Aug-Sep

China coal production disrupted by covid controls

U.K. gas storage site re-opens at reduced capacity

U.S. electric and gas reliability for winter 2022/23

U.S. coal-fired generation limited by fuel shortage

Caterpillar reports strong equipment sales ($WSJ)

Intel cuts jobs as semiconductor sales drop ($WSJ)

U.S./China hostage diplomacy ($WSJ)

NORTHWEST EUROPE’s gas futures prices for deliveries in December, the first part of winter, are still above those for Northeast Asia, continuing to divert cargoes. But the premium has narrowed to around €30/MWh from €60-75 two months ago as Europe’s gas supply has improved and storage has neared maximum capacity. Europe’s lower gas prices are steadily filtering through to lower prices in East and South Asia for spot cargoes, though prices remain exceptionally high compared with before 2022:

Best in Energy – 20 October 2022

Ukraine faces blackouts after Russia targets grid

EU gas storage and government controls ($BBG)

European Commission’s energy price plans

U.S. official says price cap not aimed at OPEC

Russia’s looming tanker crisis

CCS tries to make projects profitable ($FT)

EU states withdraw from energy pact ($FT)

Plague – natural selection and your DNA

U.S. PETROLEUM INVENTORIES including the strategic reserve fell by -6 million bbl last week. Petroleum inventories have depleted in 88 of the last 120 weeks by a total of -486 million bbl since the start of July 2020:

U.S. DISTILLATE FUEL OIL inventories have fallen in 70 of the last 120 weeks by a total of -71 million bbl since July 2020. Stocks are at the lowest seasonal level since the U.S. Energy Information Administration began publishing weekly data in 1982:

Best in Energy – 12 May 2022

South Africa’s coal and a just energy transition

U.K. economy on the cusp of a recession

U.S. East Coast hit by local jet fuel shortage

U.S. West Coast ports start pay talks ($WSJ)

China’s top leaders jockey for position ($WSJ)

China calls for elderly to get vaccinated (trans.)

U.K. REAL GDP declined in both February and March, a sign growth was stalling even before the rise in utility prices and payroll taxes took effect in April:

TEXAS power consumption has surged to a near-record as the state is hit by a sustained period of much higher than normal temperatures for the time of year:

U.S. PETROLEUM inventories increased by +3 million bbl to 1,699 million bbl last week (SPR crude  -7 million; commercial crude  +8 million; gasoline  -4 million; distillate  -1 million; and jet  +2 million):

U.S. DISTILLATE inventories fell -1 million bbl to 104 million bbl. Distillate availability shows no improvement but it is not deteriorating either at present:

U.S. GASOLINE inventories depleted by -4 million bbl to 225 million bbl last week, the lowest for the time of year since 2014, as distillate shortages bleed across into gasoline:

Best in Energy – 9 May 2022

China prioritises energy and food security (trans.)

California forecasts power shortages to 2025

U.S. grids warn of electricity shortfalls ($WSJ)

IEA sidelined by White House on oil release

India’s prolonged electricity blackouts

India’s fuel distributors trim volumes

Japan to phase out Russian oil imports

U.S. fuel prices rise faster than crude

Global refining margins widen ($BBG)

U.S. refiners run out of capacity ($FT)

CO2 removal becomes focus for policy

Pandemic results in 15 million deaths

U.S./Ukraine intelligence sharing ($WSJ)

INDIA’s temperatures have fallen over the last week and are closer to the seasonal average, reducing electricity consumption slightly and easing stress on the power grid. The grid’s frequency has moved closer to the 50 Hz target and periods of under-frequency have become shorter and less severe, showing a closer balance between generation and demand:

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Best in Energy – 6 May 2022

[MUST READ] Xi recommits to zero-covid strategy (trans.)

China’s transport problems caused by virus control (trans.)

EU power pricing under scrutiny ($EF)

EU softens planned Russian oil embargo

India to re-open marginal coal mines

U.S. SPR presents plan for partial refill

U.S. oil and gas firms boost expenditure

Russia/Ukraine war is spreading ($WSJ)

DISTILLATESHORTAGES are pulling up crude spot prices and calendar spreads as refiners maximise crude processing to meet demand for freight and manufacturing fuel:

U.S. FINANCIAL CONDITIONS are tightening rapidly as investors and intermediaries anticipate higher interest rates and a slowing economy. The Federal Reserve Bank of Chicago’s national financial conditions index – derived from 105 indicators covering risk, credit and leverage – shows conditions are the tightest since the first wave of the pandemic in 2020, and before that 2016 and 2012. The adjusted index, which attempts to isolate purely financial rather than real-economy factors, is the tightest since 2020 and before that 2011:

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