U.S. BUSINESS INVENTORIES remained elevated in January as manufacturers and distributors struggled to work down excess stocks despite an acceleration in retail sales. Reducing unplanned inventories is likely to take at least another six months, even if the economy avoids a recession, which will keep freight volumes under pressure until the third quarter of 2023:
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EU28 GAS INVENTORIES are accumulating at a record rate for such a late date in the refill season. Gas storage increased by almost +3 TWh per day in the seven days ending on October 10, the fastest seasonal increase on record. Total stocks have risen to 1,027 TWh compared with 865 TWh at the same point in 2021 and a prior ten-year average of 919 TWh.
In response to government mandates and exceptionally high prices, the refill season is on course to persist later into October or even November than usual, boosting the volume of gas in storage, and delaying the onset of drawdowns later than usual:
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U.S. INTEREST RATE traders expect an imminent business cycle downturn is virtually certain and will be relatively severe. The U.S. Treasury yield curve between two-year and ten-year securities is more inverted than at any time since September 1981, when the economy was entering the second instalment of what proved to be double-dip recession. Like the early 1980s, the central bank finds itself forced to continue tightening monetary policy even as the economy weakens to bring inflation back under control:
LA NIÑA conditions are entering their third year, with sea surface temperatures in the central-eastern Pacific almost -1.0°C below the seasonal average last month:
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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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EU28 GAS STOCKS stood at 953 TWh on September 14 and are on course to reach 1,019 TWh with a likely range of 981-1,080 TWh by the time the summer refill season ends in late October or early November. Inventories will begin the winter drawdown season at the third-highest level on record.
In the last ten years, inventories have drawn down by an average of 588 TWh with a range of 352-782 TWh between the peak in October-November and the trough in March-April. But this has been with strong pipeline inflows from Russia and other countries as well as LNG deliveries.
If Russian pipeline flows are severely disrupted the winter draw is likely to be much higher. High prices and exceptional demand restraint will be needed to ensure stocks do not run out before the winter ends. Even so, they are likely to fall to very low levels by next March, implying another herculean effort to refill them next summer:
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EU28 GAS INVENTORIES are accumulating at a relatively rapid rate of +5.2 TWh per day, notwithstanding the recent interruptions of pipeline supplies from Russia, compared with an average rate of +4.8 TWh per day over the previous ten years:
CHINA’s central-northern region stretching from Ningxia and Gansu in the west to Henan and Shandong in the east, but not including Beijing and the wider Jīng-Jīn-Jì metropolitan region, has been experiencing temperatures well above normal, leading to record electricity consumption in recent weeks. The map also shows below normal temperatures in the south where the monsoon rains have been unusually heavy:
JAPAN has called for electricity conservation especially in Tokyo as temperatures have risen more than +6°C above the long-term seasonal average in recent days and the strong air-conditioning and refrigeration demand has strained the availability of power supplies:
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U.S. RETAIL GASOLINE prices have climbed to an average of almost $5 per gallon, the highest after adjusting for wages since June 2014, when Islamic State fighters were threatening to capture the giant oilfields of northern Iraq. Wage-adjusted pump prices are in the 92nd percentile for all months since 1994, up from the 60th percentile in December 2021 and the 53rd percentile in June 2021:
U.S. ROAD FUEL prices are rising even faster than crude benchmarks, resulting in an increasing premium first for diesel and now gasoline, as refineries prove unable to keep pace with demand from freight hauliers and private motorists:
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