Best in Energy – 17 November 2022

U.S. hydrogen – funding and technology deployment

Aramco plans downstream investment in South Korea

U.S. diesel inventories at 70-year seasonal low ($FT)

Texas tries to prepare better for extreme winter cold

U.K. inflation accelerates to 11.1% in October

France’s nuclear generation starts to recover

China/Taiwan bilateral communications cease

U.S. PETROLEUM INVENTORIES depleted by -11 million barrels in the week to November 11. Large drawdowns in commercial crude (-5 million bbl), crude in the strategic petroleum reserve (-4 million) and other oils (-3 million) were partially offset by increased stocks of gasoline (+2 million), distillate fuel oil (+1 million) and jet fuel (+0.3 million). Total inventories have depleted by -509 million barrels since early July 2020, the largest drawdown on record and a symptom of persistent under-supply:

Best in Energy – 14 November 2022

Saudi Arabia widens diplomatic relationships ($BBG)

U.S. retailers push back against price increases ($BBG)

China says pre-winter coal stocks comfortable (trans.)

China underground gas storage for Jīng-Jīn-Jì (trans.)

Indonesia explores early retirement of coal-fired plant

China’s iron ore prices bounce on non-residential use

Western Interconnection’s rising reliability challenge

U.S/China presidents try to stabilise poor relationship

U.S./China leaders to meet at G20 ($FT)

OPEC⁺  and the stabilisation of oil prices

U.S. OIL PRODUCERS increased the number of rigs drilling for oil to 622 on November 10 up from 610 two weeks earlier. Drilling increased significantly for the first time since July. The number of active rigs has rebounded from a pandemic low of just 172 in August 2020 and is nearing the pre-pandemic level of 683 in early March 2020.

But the resumption has been much slower than after the two previous downturns. The rig count has risen by a total of +450 (+3.8 per week) over the 117 weeks since August 2020 compared with an increase of +544 (+4.6 per week) at the same point after the last cyclical low in 2016 and +885 (+7.6 per week) after the cyclical low in 2009:

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 – 1 November 2022

U.S. distillate shortages – a useful market primer

U.S. workforce and the impact from faster inflation

(more information about the distribution of losses)

United States narrows semiconductor embargo ($BBG)

Japan appeals for winter electricity conservation ($BBG)

U.S. EAST COAST distillate fuel oil inventories were just 24 million barrels on October 21, compared with a pre-pandemic five-year seasonal average of 50 million barrels. The East Coast deficit (-26 million bbl) accounted for nearly all the nationwide deficit (-29 million bbl): 

WESTERN EUROPE’s gas consumptionwas down in August and September by 14-15% compared with the pre-pandemic seasonal average for 2015-2019, as a result of high prices, industrial closures, a slowing economy, and energy conservation measures:

Best in Energy – 17 October 2022

[MUST READ] U.S./China relations in Xi Jinping era ($WSJ)

[MUST READ] Nuclear war lessons from past crises ($WSJ)

[MUST READ] China prioritises energy security ($BBG)

Europe’s gas supply still at risk from cold winter weather

EU tries to reach internal consensus on capping gas prices

OPEC+ officials defend Saudi Arabia after U.S. criticism

NOPEC law would escalate U.S./Saudi tensions ($BBG)

California drought drains Lake Shasta ($WSJ)

China plans to boost coal and oil inventories

China to stop LNG resales to Europe ($BBG)

Retailers accelerate sales as inflation rises ($BBG)

Diesel shortage threatens global economy ($BBG)

EUROPE’s gas futures prices for November and December have continued to fall as regional storage facilities near maximum capacity. There is enough gas in stock to ensure supplies through the first half of the winter. But the risk to supplies in the second half and during next year’s refill season is keeping prices for 2023 high:

Best in Energy – 14 October 2022

U.S./Saudi relationship strained but not broken

U.S./Saudi recriminations over OPEC+ cut ($FT)

EU explores possible gas market interventions

U.S. electric vehicles stimulate battery boom

China tests electric-powered freighter (trans.)

U.S. winter fuels outlook (EIA)

U.S. SERVICES PRICES were rising at an annualised rate of +10.1% between August and September and were +7.4% higher than a year earlier, a sign inflation is proving persistent even as some energy and commodity prices have eased:

U.S. INTEREST RATE traders expect the central bank to increase its target federal funds rate to 4.75-5.00% by April 2023 up from just 3.00-3.25% at present as they try to bring inflation back under control:

U.S. DISTILLATE fuel oil shortages are worsening. Inventories fell -5 million bbl to just 106 million bbl last week and are now at the lowest level for the time of year for more than 40 years:

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Best in Energy – 20 September 2022

Germany’s auto sector emissions remain high

China boosts imports of coal from Russia

EU/Africa tensions over gas investment ($FT)

La Niña to boost winter heating in Japan ($BBG)

U.S. shale producers hit drilling limits ($WSJ)

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

Stranded asset story and the energy crisis ($FT)

Renewables and domestic energy security ($FT)

California relies on nuclear for 10% of electricity

United States is shifting policy on Taiwan ($BBG)

Coal boom leads to expansion of marginal mines

U.S. TREASURY securities with ten year maturity are yielding 3.53%, the highest since 2010, as traders anticipate the central bank will have to keep interest rates higher for longer to bring down inflation. Yields are rising at the fastest year-over-year rate since 1999. The increase is testing the downward trend in place since the mid-1980s. If the increase is sustained it will force a widespread re-pricing of most other assets:

HEDGE FUNDS and other money managers made few changes to their positions in the six most important petroleum futures and options contracts in the week to September 13. There were total net purchases of +4 million barrels with buying in NYMEX and ICE WTI (+10 million) and Brent (+3 million) but sales of U.S. gasoline (-5 million), U.S. diesel (-3 million) and European gas oil (-1 million):

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Best in Energy – 14 September 2022

EU plans significant energy market overhaul

China set for turnover in economic officials

Poland to freeze household electricity prices

Equinor completes rapid sale of Russia assets

U.S. households’ real incomes are flat ($WSJ)

U.S. power generators’ carbon intensity falls

Expert interpretation of the Soviet Union

U.S. INTEREST RATE traders expect the central bank to boost its target federal funds rate to 4.25-4.50% by April 2023 up from 2.25-2.50% at present as officials try to bring inflation back towards their long term target. Inflation has proved faster and more persistent than anticipated implying higher interest rates and a greater probability of a hard-landing for the economy:

U.S. SERVICES prices increased at an annualised rate of +7.7% in the three months to August. Services inflation is a proxy for underlying price pressures in the economy because services account for more than 60% of consumer spending and are labour-intensive rather than energy or commodity-intensive. Service sector inflation has decelerated from a peak of +9.9% in the three months to June but remains more than three times faster than the central bank’s long-term target of a little over 2% per year:

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Best in Energy – 14 July 2022

Smart sanctions on Russia’s petroleum exports¹

EU prepares for gas shortages in winter 2022/23

Biden wants sanctions and lower oil price ($FT)

Berkshire Hathaway boosts Occidental ownership

China studies ending Australia coal ban ($BBG)²

ERCOT again appeals for electricity conservation

(see also ERCOT’s alert notice

Bolton boasts about helping plan coup attempts⁴

Urban heat islands and summer electricity ($BBG)

¹ This paper by Harvard’s Craig Kennedy published in April appears to be an early version of the price-cap plan the U.S. Treasury Department is advocating to the European Union, Japan, India and China.

² Bloomberg reports Chinese officials are preparing to recommend the lifting of the country’s ban on coal imports from Australia. The proposal is framed as a policy response to concerns about coal shortages stemming from sanctions on Russia. But China does not need Australian coal at the moment given the slowdown in the domestic economy, rapidly rising domestic coal production, and the huge increase in hydropower generation. The proposal therefore appears to be primarily diplomatic – part of détente between China and the new government in Canberra. The question is what China would hope to receive in return: de-escalation of the conflict, generalised goodwill and a reset in the relationship, or something more concrete?

³ Visible only to IP addresses in the United States or via a VPN

⁴ U.S. government involvement in the overthrow of foreign governments is widely known, including Iran (1953) and Chile (1973). But it is rare for a recently serving senior official to acknowledge the fact. There is always a large gap between what we “know” in the sense of being overwhelmingly probable and what we “know” in the sense of being able to prove to the satisfaction of audiences, editors and lawyers. Indiscretions by former officials are useful because they move topics from the known-suspected to the known-proven category which makes it much easier to analyse and write about them.

U.S. SERVICE SECTOR prices climbed at an annualised rate of almost +10% in the three months from April to June, a clear sign the economy is overheating. Services inflation is running at some of the fastest rates for 60 years. The three-month rate is in the 93rd percentile for all similar periods since 1960:

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Best in Energy – 13 July 2022

Baltic grids prepare to synchronise to EU rapidly

OPEC predicts oil consumption to rise in 2023

Russia’s fuel exports to Middle East surge ($BBG)

China hydropower generation hits record high

U.S. homes with electric-only energy systems

China hesitates to mandate vaccination ($BBG)

Rapid inflation and its many discontents ($FT)

BRENT’s calendar spread from December 2022 to December 2023 has softened to a backwardation of $8 per barrel from $16 in early June as traders anticipate a cyclical economic slowdown will relieve some of the shortage in oil supply next year:

TEXAS electricity consumption increased at a compound annual rate of +1.5% over the last 20 years, reaching 427 billion kWh in 2021, up from 318 billion kWh in 2001:

U.K. REAL GDP rose by +0.51% in May from April, the fastest increase for four months, with particularly large increases in manufacturing (+0.87%) and construction (+1.54%):

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