U.S. OIL AND GAS drilling rigs fell by -7 last week to 753. The number of active rigs has fallen in five of the last eight weeks and is at the lowest since the start of July 2022. The upturn that started in August 2020 after the first wave of the pandemic has at least paused and possibly ended as drilling rates slide in response to lower oil and gas prices:
* Sharp increases in the cost of food and fuel have often acted as the trigger for unrest. In eighteenth century England, increases in grain prices as a result of bad harvests or war frequently led to local disturbances, usually targeting bakers, grain merchants and government storehouses, with magistrates often calling in soldiers to restore order. Fuel riots were less common but a sharp rise in the price of coal would normally trigger a parliamentary inquiry to investigate monopolistic practices and hoarding. Food and fuel price rises were always seen as politically sensitive and a potential threat to public order (“The Coal Industry of the Eighteenth Century”, Ashton and Sykes, 1929).
U.S. PETROLEUM INVENTORIES including the strategic petroleum reserve fell -1 million bbl to 1,678 million bbl last week. Stocks have fallen in 78 out of the last 105 weeks by a total of -440 million bbl since the start of July 2020. The most recent week saw an increase in crude inventories (+2 million bbl) but depletion of gasoline (-2 million), distillate fuel oil (-1 million) and jet fuel (-1 million).
The drawdown in fuel stocks in the week ending July 1 is likely associated with the impending public holiday on July 4, which will have seen inventories pulled forward from the primary distribution system of refineries, pipelines and bulk terminals (where they are recorded) into the secondary system of retailers and local fuel suppliers as well as end-users’ own storage tanks (where they are not recorded). It largely reversed a big build in gasoline, distillate and jet fuel the week before as stocks were pre-positioned ahead of the holiday demand:
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EUROPE’s midsummer-midwinter gas futures calendar spread from July 2022 to January 2023 has narrowed sharply to a backwardation of less than €4/MWh down from a record €72 in early March. To ensure inventories can be accumulated over the next six months for use next winter, without incurring large losses, the spread needs to move into contango to cover storage costs. The July 2022 futures price must fall, the January 2023 price must rise, or both. So far, both prices appear to be adjusting in the expected direction:
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