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:
FRANKFURT, a proxy for northwest Europe, reached roughly 60% of the way through the winter heating season on February 1. So far the accumulated heating demand has been -17% below the long-term average and is the lowest since 2015/16 and before that 2006/07. But after an exceptionally long period of mild temperatures between December 19 and January 15, temperatures have turned significantly colder, causing the heating deficit to narrow slightly:
BRENT’s six-month calendar spread has fallen to a backwardation of $4.90 per barrel (95th percentile for all trading days since 1990) down from $7.60 (98th percentile) a month ago and a record over $15-20 in the first months after Russia’s invasion of Ukraine. The softening spread is consistent with a recession in Europe and China, possibly spreading across the rest of the world, easing pressure on oil supplies in 2023:
U.S. TREASURY yield curve is now more inverted between two-year and ten-year maturities than at any time since September 1981 at the start of the second instalment of the double-dip recession. U.S. interest rate traders anticipate an exceptionally rapid turn around in monetary policy. Such a rapid pivot is consistent with a soft-landing allowing the central bank to unwind rate rises quickly, or because a hard-landing eliminates inflation and requires it to support growth and employment instead:
BRENT’s front-month futures price fell -$10.73 (-9.5%) on July 5. The decline came on a day with little new information about production or consumption but traders seemed to anticipate a higher probability of an economic slowdown. In percentage terms, the decline was the third-largest since July 2020 and 4.1 standard deviations away from average since 1990:
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U.S. GASOLINE prices at retail level and adjusted for wages are now at the highest since 2013. Wage-adjusted gasoline prices are in the 94th percentile for all months since 1994, up from the 60th percentile at the end of 2021. At this level, demand destruction should be evident within the next few months:
FREEPORT LNG’s prolonged disruption is expected to reduce exports from the United States to Europe significantly and tighten the European gas market. Reduced pipeline flows from Russia are likely to worsen the shortfall.
The premium for gas delivered in Northwest Europe rather than at Louisiana’s Henry Hub next month has more than doubled to €109/MWh up from €50 on June 7.
Europe’s summer-winter calendar spread from July 2022 to January 2023 has reverted to a backwardation of almost €3/MWh from a contango of more than €14 on June 8 as traders anticipate the market will be tighter:
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