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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