Tag: Russia

Best in Energy – 24 March 2023

Russia oil exports and rising shadow fleet risks

India grows both coal and renewable generation

U.S. energy chief says SPR refill could take years

EU plans to indigenise solar supply chain ($FT)

U.S. central bank’s sharp policy dilemma ($WSJ)

EUROZONE manufacturers have reported a widespread decline in business activity so far in March, the ninth consecutive monthly decline since July 2022. The preliminary purchasing managers’ index fell to 47.1 (17th percentile for all months since 2006) in March from 48.5 (25th percentile) in February:

EARTH’s northern hemisphere from 45°N poleward was hit by severe geomagnetic storm peaking around 0300Z to 0600Z on March 24, according to warnings issued by the Space Weather Prediction Center. The storm registered G4 / K9-minus, the second most severe rating, something expected to happen on only 60 days in every 11-year solar cycle. Solar activity, as measured by sunspots, is intensifying towards the next cyclical peak expected around 2025/26:

Best in Energy – 22 March 2023

Russia’s oil export prices become opaque ($FT)

Russia’s oil exports find new middlemen ($FT)

U.S. refiners to prioritise future distillate growth

U.S. commercial real estate problem loans ($WSJ)

Central banks’ bond purchases and bank failures

La Niña fades but timing of El Niño still uncertain

Lithium prices slump ($BBG)

U.S./China economic coercion

U.S. BUSINESS INVENTORIES remained elevated in January as manufacturers and distributors struggled to work down excess stocks despite an acceleration in retail sales. Reducing unplanned inventories is likely to take at least another six months, even if the economy avoids a recession, which will keep freight volumes under pressure until the third quarter of 2023:

Best in Energy – 20 March 2023

EU energy-intensive business ($FT) ¹

Russia oil trade and sanctions ($FT)

Iraq’s mismanaged reconstruction

Supercore prices and policymaking

Russia/China border trade ($WSJ)

Germany urges more gas conservation

India plan to extend fuel export controls

¹ The two most important observations in this article are about gas demand reductions by energy-intensive businesses:

“Lower prices are not only saving energy-intensive companies a fortune. They have also put the colour back in the elaborate creations of the Italian glass blowers at New Murano Gallery.  Each of the firm’s 11 1,000 degree furnaces produces glass with a different hue and, after the company had to turn half of them off last year, almost all are back on. ‘We have nearly the full palette,’ Francesco Scarpa, one of the gallery’s co-founders.”

“Fernández-Valladares described the mood of the tile making sector that dominates his small town in Castellón province as ‘generally quite pessimistic’. Sales have plunged. Since December, demand from clients — which are mostly wholesale buyers — has dropped 30 per cent. In January, the factory resorted to the radical option of turning off the kiln for an extended period, shutting it down for 22 days to save on gas. Fernández-Valladares said he could not rule out more shutdowns. ‘We normally work through the Easter holidays and I don’t know if we’re going to have to stop.’”

Multiply these examples across the entire European Union, and it helps explain much of the reduction in temperature-adjusted gas consumption during winter 2022/23.

BRENT’s six-month calendar spread has collapsed to a backwardation of just 47 cents per barrel down from $3 per barrel at the start of March as traders anticipate a much higher probability of a hard-landing or recession following enforced takeover of the crisis-stricken Credit Suisse by rival bank UBS:

Best in Energy – 17 March 2023

U.S. energy-related emissions projection

Bank rout as easy money era ends ($BBG)

OPEC⁺ calm despite oil price drop ($BBG)

OPEC⁺ sees oil price fall financially driven

Russia/India oil price above $60 on freight

China is diversifying away from U.S. trade

U.S. retailers press for price cuts ($WSJ)

Russia oil exports and rising storage ($BBG)

Shippers balk at costly green freight ($WSJ)

U.S. INTEREST RATE markets steadied on March 16 as the Federal Reserve organised major national banks to help boost confidence in their smaller regional counterparts by placing large-scale deposits with First Republic bank. Rate forecasts firmed slightly. But the rate trajectory implied by futures prices still shows rates declining from August onwards as the central bank responds to tightening credit conditions and a slowing economy:

NORTHWEST EUROPE is roughly 85% of the way through the heating season. Temperatures at Frankfurt in Germany have been close to the long-term seasonal average since the start of March. But very warm temperatures in October and from mid-December to mid-January have left a significant deficit in heating demand that has not been erased. The total number of degree days so far this winter (1540) is -16% below the long-term average (1842):

Best in Energy – 14 March 2023

U.S./EU economies boosted by lower energy prices ($WSJ)

Global LNG market balance becomes less clear after 2027

European steelmakers restart selected blast furnaces

Russia/India crude oil flows and market price reporting

Philippines set for big rise in wind and solar generation

U.S. ethane consumption by petrochemicals makers

Silicon Valley recriminations over bank failure ($FT)

U.S. central bank’s favourable collateral loans ($WSJ)

U.S. INTEREST RATE traders no longer expect the central bank to lift rates further following the failure of Silicon Valley Bank, with overnight rates expected to start falling from July onwards, as credit conditions tighten and force a slowdown in the economy. The path for interest rates over the rest of 2023/24 is now forecast to be much lower.

But the outcome of a financial failure is notoriously difficult to predict since it depends largely on confidence. Some failures are resolved quickly with little or no impact on the rest of the financial system and the real economy. In other cases, contagion occurs and the economic impact is significant:

EUROPE’s gas storage sites are 56.5% full, the second-highest on record for the time of year, well above the prior ten-year seasonal average of 36.3%. The end of the winter heating and inventory depletion season is now very near (with stocks usually hitting a minimum on March 30 ± 14 days):

Best in Energy – 10 March 2023

U.S. Treasury reassures traders on sanctions ($FT)

Russia’s missiles target Ukraine’s energy networks

India to boost LNG imports for generators ($BBG)

U.S. central bank discovers r* is unreliable indicator

U.S. yield curve inversion and equity values ($WSJ)

U.S. economy and supply-driven inflation ($WSJ)

U.S. inflation fuelled by margin expansion ($BBG)

U.S./EU downplay race on energy subsidies ($FT)

EU eases state aid rules to match U.S. subsidies

(see also European Commission press release)

U.S. railroad safety and trackside sensors ($WSJ)

Yemen’s decaying oil storage tanker to be unloaded

U.S. TREAURY YIELD curve between two-year and ten-year maturities has inverted to around 100 basis points, the most extreme since August 1981, when the economy was entering the second part of the double-dip recession of the early 1980s. The inversion is signalling a sharp fall in interest rates, resulting from a rapid deceleration of inflation, a downturn  in the business cycle, or a combination of both:

U.S. GAS INVENTORIES are moving into an increasing surplus, keeping downward pressure on prices. Stocks were +240 billion cubic feet (+13% or +0.58 standard deviations) above the prior ten-year seasonal average on March 3, up from a deficit of -263 billion cubic feet (-8% or -0.98 standard deviations) on January 1, 2023, and a deficit of -427 billion cubic feet (-13% or -1.52 standard deviations) on September 9, 2022:

Best in Energy – 9 March 2023

Tesla plans to eliminate dependence on rare earths

U.S. energy secretary address to Houston CERAWeek

U.S. oil well initial productivity is declining ($WSJ)

Keystone ordered to trim pipeline pressure ($BBG)

U.S./EU embark on race for energy subsidies ($BBG)

U.S. LNG exports projected to grow in 2023 and 2024

Nord Stream sabotaged by pro-Ukraine team ($WSJ)

Russia/NATO energy war enters attrition phase ($FT)

U.K. workforce remains smaller than before pandemic

India tries to improve electric reliability in April/May

(see also formal press release by the power ministry)

China’s refined petroleum exports set to slow

U.S. solar installers forecast to rebound in 2023

U.S. oil firms embrace hydrogen production idea

U.S./Australia submarine sales agreement ($WSJ)

U.S. PETROLEUM INVENTORIES including the strategic reserve increased by +2 million barrels over the seven days ending on March 3. Stocks have increased in 10 of the last 14 weeks by a total of +31 million barrels from their recent low on November 25, 2022, arresting the previous downward trend. Inventories are still -231 million barrels (-12% or -2.15 standard deviations) below the prior ten-year seasonal average. But the deficit has narrowed from -278 million barrels (-15% or -3.05 standard deviations) in November:

Best in Energy – 8 March 2023

Russia/India switch trade settlement out of dollars

India’s heightened risk of evening power shortages

Nord Stream sabotage linked to Ukraine ($NYT)

Ukraine denies involvement in pipeline sabotage

U.S. shale chiefs recognise end of revolution ($FT)

Tesla shifts focus to cutting manufacturing costs

Nuclear generation deployment is shifting to Asia  

China’s military researchers study Ukraine conflict

Europe boosts diesel from Middle East and Asia

Tech sanctions to spur industrial espionage ($FT)

U.S./China struggle to stabilise relationship ($WSJ)

U.S. CENTRAL BANK chief Jerome Powell toughened his rhetoric on core inflation during congressional testimony, sending forecasts for interest rates surging higher on March 7. Rate traders expected interest rates to end 2023 at around 5.55% up from a forecast of 5.38% on March 6:

SINGAPORE distillate inventories remain at their lowest level for the time of year since 2008. Stocks are -4 million barrels (-36% or -1.91 standard deviations) below the prior ten-year seasonal average. The deficit has only narrowed slightly from six months ago when it was -4 million barrels (-34% or -2.21 standard deviations):

Best in Energy – 7 March 2023

OPEC/U.S. shale firms discuss tight capacity

EU to launch joint gas buying system ($BBG)

China’s next premier will be Li Qiang

BP resets renewable energy strategy

South Korea boosts coal-fired power

Russia’s crude shipped to Middle East

U.S. Customs clears China solar panels

U.S. solar generation and wind farms

U.S. oil firms to get CCS subsidies (FT)

India trade pivots to U.S. allies ($WSJ)

U.S. recession postponed again ($WSJ)

U.S./China relations deteriorate ($FT)

U.S./China escalation strategies ($FT)

U.S. INTEREST RATE traders continue to boost their expectations for benchmark short rates at the end of the year as the central bank signals rates may have to go higher and stay there for longer to bring inflation back to target. Rates are now expected to be around 5.25-5.50% in December 2023 up from an expectation of 4.25-4.50% at the start of February:

COMMITMENT OF TRADERS reports – the U.S. Commodity Futures Trading Commission (CFTC) and ICE Futures Europe suspended publication of their commitments of traders reports in late January following a ransomware attack on a major market participant and infrastructure provider which resulted in incomplete submissions. Both are now starting to catch up with the backlog of missed weekly reports. ICE has caught up; the CFTC is still some weeks behind. I am not going to publish a weekly analysis again until they have both caught up fully since the reports now contain very out of date information. For reference, however, the hedge fund and money manager positions on February 7, the most recent currently available, are shown below:

Best in Energy – 1 March 2023

India’s coal producers see booming fuel demand

China’s massive deployment of wind generation

Northwest Europe forecast cold winter end ($BBG)

India heatwave boosts power use to record ($BBG)

U.S. consumer confidence and expenditure ($BBG)

U.S. shale firms squeezed by escalating costs ($FT)

Colorado refinery shut after cold weather damage

U.S. electricians in increasing demand ($WSJ)

Russia/China nuclear cooperation ($BBG)

Central banks fear impact of rising wages ($FT)

CHINA’s manufacturers reported the most widespread rise in business activity for over a decade as the economy rebounded after the end of coronavirus lockdowns and the passing of the epidemic’s exit wave. The official purchasing managers’ index surged to 52.6 in February, the highest since April 2012, and up from just 50.1 in January 2023 and 47.0 in December 2022. The index was in the 96th percentile for all months since 2011 pointing to a very broad upturn in activity:

NORTHWEST EUROPE is more than three-quarters of the way through the heating season. Frankfurt in Germany has experienced 1,377 heating degree days so far this winter compared with a long-term seasonal average of 1,673, a deficit of almost 18%, reducing heating demand and easing the pressure on gas inventories and prices: