Best in Energy – 8 August 2022

Russia oil discounts narrow on China/India demand

Germany’s river freight restricted by low water level

Bangladesh explores rotating factory closure ($BBG)

Asia’s emissions market prices are still low ($BBG)

China’s navy and air force practices Taiwan blockade

China forecasts flooding in major coal areas (trans.)

U.S. shale producers focus on higher oil prices ($FT)

U.S./China navy competition and Northern Sea Route

EUROPEAN GAS OIL calendar spreads between December 2022 and December 2023 have fallen into a backwardation of less than $11 per barrel from almost $33 in mid-June, as traders anticipate the onset of a recession depressing consumption:

JAPAN LNG STOCKS at the end of May had risen to 2.36 million tonnes, the highest for the time of year for at least seven years, as the country’s utilities accumulate inventories to protect against possible supply disruptions in winter 2022/23:

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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 – 27 July 2022

[MUST READ] Germany cuts ammonia production to save gas

[MUST READ] Critical minerals recovery from waste streams

Japan strikes benchmark coal deal at $375/tonne ($BBG)

Germany to subsidise energy efficiency renovations

IMF downgrades global economy forecasts

Pakistan raises electricity prices

U.S./Russia oil price cap ($FT)

U.S. uranium import reliance

CYCLICAL INDICATORS: three of the top five stories featured on the front page of the Wall Street Journal on Wednesday are about slower sales, slower corporate earnings and slower hiring:

CATERPILLAR’s share price in the three months from May to July was down by -13% compared with the same period a year ago. The heavy equipment manufacturer’s share price has been closely correlated with the OECD’s leading economic indicator. The slump is consistent with the onset of a business cycle slowdown:

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Best in Energy – 19 July 2022

Crude’s physical tightness contrasts with recession fears¹

Germany’s chemical makers cannot cut gas further

Japan buys its most expensive ever LNG ($BBG)

China’s LNG imports set to drop in 2022 ($BBG)

China’s power generation at record high ($BBG)

U.S. labour market indicators are diverging ($WSJ)

EU calls for immediate gas consumption cut ($FT)

U.S. gasoline consumption fell in second quarter

¹ Physical crude markets are prompt cash markets and reflect the balance of production, consumption and inventories now. Financial markets reflect expectations about how production, consumption and inventories will evolve over the next 6-12 months or so and are anticipating a recession in future. There is only one price of oil. But near-term shortages are consistent with anticipating future surpluses as a result of an economic slowdown. The current strongly backwardated market structure implies oil is in very short supply right now (which has been evident from large and persistent inventory draw downs) but is expected to be more plentiful in 6-12 months time (as a result of an economic slowdown dampening oil consumption). The price structure embodies the cyclical behaviour of production, consumption, inventories and price levels:

LONDON temperatures continue to rise with the temperature at Heathrow reaching 36.3°C on July 18 up from a high of 30.6°C on July 17, with a further build in heat expected today:

U.K. POWER GRID is relying heavily on gas-fired generation to meet demand during the heatwave. Combined-cycle gas turbines (CCGTs) have been supplying around 50% of total domestic generation in recent days:

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Best in Energy – 15 July 2022

White House downplays hopes for more oil

Middle East imports more Russian fuel oil

Japan plans reactor restarts before the winter

United Kingdom heads for winter crisis ($BBG)

Germany is moving into a recession ($BBG)

ERCOT confident will avoid blackout ($BBG)

U.S. household finances and inflation ($WSJ)

Russia/NATO conflict is test of resolve ($BBG)

Central banks turn hawkish on inflation

U.S. CENTRAL BANK is expected to raise short-term interest rates to 3.50-3.75% by February 2023 up from 1.50-1.75% at present to curb inflation. From the second quarter of 2023, however, policymakers are expected to start reducing interest rates as the economy slows and inflation decelerates:

U.S INTEREST RATE traders anticipate a recession has become virtually certain following the continued acceleration of inflation. The yield curve spread between 2-year and 10-year maturities is now in the 98th percentile for all months since 1990:

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Best in Energy – 1 July 2022

Shipping lines cancel more ocean sailings as demand falls

Friendshoring starts to reshape minerals supply chains

OPEC+ tries to maintain unity despite U.S. pressure

Baltic grid operators ready for rapid re-synchronisation

Russia plans for nationalisation of Sakhalin-2 gas project

U.S. Supreme Court curbs authority of regulatory agencies

Japan faces power shortages throughout summer ($WSJ)

China starts west-east electricity transmission line (trans.)

Coal’s resurgence sends prices soaring ($FT)

U.S. DISTILLATE FUEL OIL supplied to the domestic market averaged 3.68 million b/d in the four weeks ending on June 24 down from 3.88 million b/d in the same period last year. The volume supplied is an estimate subject to considerable short-term errors and volatility so it should be interpreted with extreme caution. But the reduction of -0.2 million b/d is relatively large and would be consistent with the onset of an economic slowdown:

EUROZONE MANUFACTURERS reported a much narrower increase in business activity this month as inflation and sanctions push the region’s economy towards recession. The purchasing managers’ index slid to 52.1 in June (47th percentile for all months since 2006) down from 54.6 in May (65th percentile) and 63.4 in June 2021 (a record):

U.S. REAL PERSONAL INCOMES less transfer payments (PILT) were up by just +1.8% in May compared with the same month a year earlier. PILT is one of the indicators monitored by the National Bureau of Economic Research’s Business Cycle Dating Committee to determine peaks and troughs in the cycle. PILT growth has been slowing since the start of the year and is now in only the 30th percentile for all months since 1980, implying the economy is losing momentum as inflation outstrips earnings:

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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 – 11 April 2022

EU’s Russia coal ban upends market ($BBG)

U.S. SPR sales and impact on oil prices

Nigeria power grid collapses for second time

Germany expects “brief spike” in coal costs

Germany to help firms hit by sanctions ($FT)

EU divided on Russia energy embargo ($FT)

EU divided on Russia oil import ban ($WSJ)

Biomass supplies hit by Russia conflict ($FT)

U.S. transport firms raise fuel surcharges ($WSJ)

Japan orders gas companies to boost inventories

EU/Japan competition for energy imports ($FT)

China’s grain supply threatened by covid ($BBG)

U.S. nuclear generation fell in 2020 and 2021

China accelerates nuclear armament ($WSJ)

U.S. OIL AND GAS producers added +16 new rigs last week with increases in both oil (+13) and gas (+3). The total number of active rigs climbed to 689, up from a cyclical low of 244 in August 2020 but below the pre-pandemic level of 793 in early March 2020:

U.S. NET GAS EXPORTS averaged 332 billion cubic feet per month in the three months from November to January compared with 294 billion in the same period a year earlier, as a result of the growth in liquefaction capacity and strong demand from Europe and Asia:

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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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