Best in Energy – 4 August 2022

OPEC+ raises output  by de minimis amount¹

Electricity transmission links undervalued

Freeport LNG to restart partially in October

Autos/semiconductors relationship

Automakers see weakening demand

¹ Higher oil production by Saudi Arabia and the other Gulf monarchies was briefed as one of the benefits from U.S. President Joe Biden’s visit to the region and “reset” of the relationship with Saudi Arabia last month. The tiny output increase of +100,000 b/d was the smallest that could be announced without appearing to snub the president completely. But it raises the question of what diplomatic benefits the president achieved from the trip – if not higher oil output did he secure some other objectives? Who advised the president to make this trip, within the administration and outside? Does the president ultimately see it as a success or a disappointment?

BRENT spot prices and calendar spreads have weakened consistently in recent weeks, a sign the recent upward price cycle has begun to break down. Prices and spreads are softening in response to the increased probability of a recession dampening oil consumption:

BRENT’s calendar spread from December 2022 to December 2023 has softened to a backwardation of $7.20 per barrel, down from $16.50 in early June, and close to its lowest levels since Russia invaded Ukraine in February. Traders are anticipating an imminent business cycle slowdown will relieve under-production in the oil market and stabilise inventory levels:

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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 – 6 June 2022

Texas grid anticipates record electric load this week

OPEC⁺ and the growing gap between rhetoric and reality

U.S./Saudi rapprochement forced by rising oil prices ($FT)

Argentina struggles to boost Vaca Muerta shale play ($FT)

Germany’s policy conflicts over LNG expansion ($FT)

Africa’s shortage of local crude oil refining capacity ($FT)

MISO’s generation reserve could fall very low this summer

MISO prepares for power shortages and demand reductions

Russia/Ukraine war will reshape global energy flows ($WSJ)

TEXAS ELECTRICITY CONSUMPTION has increased at a compound rate of +1.70% per year over the last five years, notwithstanding the pandemic and recession in 2020. Electricity sales to end-users in the state totalled 433 TWh between April 2021 and March 2022 (the latest data available) up from 398 TWh between April 2016 and March 2017:

U.S. PETROLEUM INVENTORIES including the strategic petroleum reserve depleted by another -5 million bbl to 1,681 million bbl in the week to May 27. Stocks have fallen in 74 of the last 100 weeks by a total of -436 million bbl since the start of July 2020:

U.S. EAST COAST DISTILLATE stocks fell by another -0.6 million bbl to just 21.0 million bbl in the week to May 27. Regional distillate inventories are now -23 million bbl (-52%) below the pre-pandemic five-year average and the supply position shows no sign of improving:

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Best in Energy – 1 June 2022

The United Kingdom has a two-day public holiday on Thursday and Friday to celebrate the sovereign’s platinum jubilee, so Best in Energy will resume on Monday.

OPEC ⁺ explores suspending Russia allocation ($WSJ)

Russia prepares to re-route oil from Europe to Asia

India’s private refiners benefit from cheap Russian oil

India’s record renewables output eases coal shortage

Africa pushes back against emissions hypocrisy ($FT)

U.S. retailers attempt to resist price increases ($WSJ)

Global diesel and gasoline shortage raises prices ($FT)

U.S. residential use of air-conditioning reaches 88%

OPEC’s spare capacity and market stabilisation

EUROZONE manufacturers reported a further slowdown in growth last month as rapid inflation and the war between Russia and Ukraine took their toll. The manufacturing purchasing managers’ index slipped to 54.6 in May (65th percentile) from 55.5 in April (74th percentile) and 63.1 in the same month last year (100th percentile):

EUROPE’s gas futures summer-winter calendar spread from July 2022 to January 2023 is moving deeper into contango as inventories rise at the fastest rate on record alleviating some concerns about filling storage sites:

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