EUROZONE manufacturers have reported a widespread decline in business activity this month. Preliminary results from the purchasing managers survey show the composite activity indicator slipping to 45.5 (8th percentile for all months since 2006) in April down from 47.1 (17th percentile) in March and 55.5 (76th percentile) a year ago. Eurozone manufacturers are now unambiguously in recession as they struggle with high energy prices, rising interest rates, excess inventories and heightened caution from household and business buyers:
NORTHEAST ASIA’s LNG prices continue to fall amid plentiful inventories in both North Asia and Europe after a mild winter at both ends of Eurasia. Futures prices for LNG to be delivered in July 2023 have fallen below $13 per million British thermal units, the lowest for 15 months since January 2022, before Russia’s invasion of Ukraine:
NORTHEAST ASIA has experienced an unusually cold winter, in contrast to milder than normal temperatures at the other end of the Eurasian continent. Heating demand in Beijing, the heart of the Beijing-Tianjin-Hebei (Jīng-Jīn-Jì) mega-region, with a combined population of 113 million, has been +8% higher than the long-term average so far this winter. Beijing’s daily temperatures were below the seasonal average on 43 of 62 days in December and January:
EUROPE’s gas inventories have continued to accumulate later into the start of the traditional winter heating season than any other year in records dating back to 2011. Gas inventories in the European Union and the United Kingdom (EU28) were still rising on November 13, later than the previous record of November 12 in 2011 and far past the median peak occurring on October 26. The late fill is attributable to a combination of warmer-than-normal temperatures and high prices rationing consumption. Late fill is lifting inventories close to a record high and reducing the probability stocks will fall critically low before the end of winter:
GREAT BRITAIN’s maximum winter loads on the transmission system since 1990/91 are illustrated in the chart below (loads exclude Northern Ireland which has its own electricity network). Loads shown are “triads” – the three highest half-hourly loads separated by at least 10 days occurring each winter between November and February. Triads are used to set transmission network use of system (TNUoS) charges for large electricity consumers who are metered on a half-hourly basis. Triads are declared retrospectively after the end of each winter in March (“What are electricity triads?” National Grid, 2018).
Half-hourly (HH) customers are billed for TNUoS based on the amount of electricity they use during the three triad half-hours. Triads set charges for the entire year. In the limit, if a HH consumer uses no electricity from the grid during those three half hour periods, their TNUoS is set at zero for the entire year. The possibility a triad might be declared gives HH customers a strong incentive to minimise electricity use and/or generate their own power during periods when the total load on the network is expected to be very high.
Triad charging helps reduce strain on the grid during the winter peak, usually between 1630 GMT and 1800 GMT, when street lighting comes on, families start preparing the evening meal, but many shops and offices are still open and occupied. Several consultancies offer triad forecasting services – alerting HH consumers when there is an elevated risk that a triad could occur so they can reduce their net load temporarily.
In winter 2021/22, triads occurred on Thursday December 2 (43.7 GW at 1630-1700 GMT); Wednesday January 5 (42.8 GW at 1700-1730 GMT); and Thursday January 20 (43.5 GW at 1700-1730 GMT) (“Triads 2021/22”, National Grid, March 29, 2022).
Triad loads have been declining since 2007/08, and especially since 2010/11, as a result of improvements in energy efficiency, sluggish economic growth, changes in the industrial mix, and an increase in self-generation by HH consumers as well as embedded generation from solar panels added to homes, offices and local distribution networks:
U.S. INTEREST RATE traders expect the federal funds rate to reach 3.50-3.75% by January 2023 up from 0.75-1.00% at present as the central bank attempts to bring inflation under control. If they prove necessary, increases on this scale would result in a significant slowdown in the business cycle:
DATED BRENT calendar spreads are signalling exceptional tightness over the next two months. The extreme backwardation is consistent with the disruption of Russia’s exports and the maintenance season for platforms, pipelines and fields in the North Sea. But it could also be a sign the market is being squeezed. Strong fundamentals create ideal conditions for a squeeze. “Always squeeze with the grain of the market not against it,” as a veteran trader told me over lunch many years ago:
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