Best in Energy – 13 January 2023

Germany’s gas buying intensified price spike ¹

PJM probes generator unavailability in storm

EU economy boosted by drop in energy prices

EU seeks alternatives to Russian diesel ($BBG)

China’s epidemic moves to rural areas ($BBG)

Tesla discounts cars after missing sales target

¹ Germany’s government-directed gas buying in the spot market likely contributed to the spike in prices in summer 2022 and subsequent slump in winter 2022/23. Price spikes normally occur when a price-insensitive buyer is forced into the market to buy no matter the cost and no matter how much it moves prices higher against themselves.

Spikes are often characteristic of a short-seller forced to buy back their position (“short and caught” or “he who sells what isn’t his’n, must pay the price or go to prison”).

In this case Germany purchased gas for storage regardless of cost to increase inventories and improve energy security ahead of the winter, anticipating a disruption of Russian pipeline flows. Playing the role of “forced buyer”, Germany’s buying likely caused or at least accelerated the rise in prices to record levels in August 2022. Once the forced buying was completed, however, prices corrected lower.

Some EU policymakers have suggested the spike shows the futures market “failed” in the summer of 2022 and needs to be reformed or replaced with an alternative and more representative and liquid benchmark. But arguably the market was simply responding to the presence of a very large and completely price insensitive buyer.

U.S. SERVICE SECTOR inflation appears to have peaked. But prices are still rising at an annualised rate of 5.5-7.5%, two or three times faster than the central bank target of 2.0-2.5% per year. Inflation in the labour-intensive services sector tends to be stickier than for commodities and merchandise, which is why it tends to be a focus for policymakers:

Best in Energy – 14 December 2022

EU/UK diesel imports rise pre-sanctions ($BBG)

China braces for exit wave of infections ($WSJ)

China travel rises as quarantine controls end

G7/Vietnam deal on energy transition funds

India’s solar expansion mainly displaces gas

U.K. plans hydrogen-ready home heat ($FT)

Shanxi restarts coal mine production (trans.)

U.S. fusion experiment reaches milestone

U.S. SERVICE SECTOR prices rose at an annualised rate of 6.4% over the three months ending in November. Service sector output is more labour-intensive than manufacturing and prices tend to be more sticky. Services inflation has decelerated from 9.9% in the three months ending in June, but it is still three times faster than the central bank’s target of a little over 2%:

Best in Energy – 14 October 2022

U.S./Saudi relationship strained but not broken

U.S./Saudi recriminations over OPEC+ cut ($FT)

EU explores possible gas market interventions

U.S. electric vehicles stimulate battery boom

China tests electric-powered freighter (trans.)

U.S. winter fuels outlook (EIA)

U.S. SERVICES PRICES were rising at an annualised rate of +10.1% between August and September and were +7.4% higher than a year earlier, a sign inflation is proving persistent even as some energy and commodity prices have eased:

U.S. INTEREST RATE traders expect the central bank to increase its target federal funds rate to 4.75-5.00% by April 2023 up from just 3.00-3.25% at present as they try to bring inflation back under control:

U.S. DISTILLATE fuel oil shortages are worsening. Inventories fell -5 million bbl to just 106 million bbl last week and are now at the lowest level for the time of year for more than 40 years:

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