Best in Energy – 26 January 2023

Europe’s gas-fired generators reduced output

Indonesia coal exports hit record high in 2022

South Africa’s coal exports slumped last year

U.S. oil output growth set to slow in 2023/24

Microsoft warns about revenue outlook

Higher-earners reduce hours worked ($WSJ)

Tesla discounts vehicles to drive sales ($WSJ)

U.S./Iran nuclear talks near breakdown ($FT)

CHINA’s Lower Yangtze mega-region is being hit by a wave of intense of cold which will drive a significant increase in heating demand, though most factories are closed for the Lunar New Year holiday. Temperatures in Nanjing were more than -6°C below the long-term seasonal average on January 25. So far this winter heating demand (731 HDDs) has been lower than average (789 HDDs). But the recent run of cold weather has trimmed the cumulative deficit in heating demand to -7% down from -11% on January 13:  

U.S. PETROLEUM INVENTORIES including the strategic reserve rose +4 million barrels to 1,606 million barrels in the seven days to January 20. But stocks were -170 million barrels below the level a year ago and -304 million barrels below the level before the pandemic in 2019. Commercial crude stocks have increased by +33 million barrels compared with the same point last year. But only because the strategic petroleum reserve has been depleted by -220 million barrels:

Best in Energy – 9 January 2023

Australia/ China coal shipments mostly symbolic value

U.S. SPR rejects first round of offers to refill inventories

Mass transit systems struggling after pandemic ($WSJ)

North Korea becoming full nuclear weapons state ($FT)

Solar storms and the risk to GPS systems and shipping

Local newspapers – disruption, finance and innovation

U.S. GAS INVENTORIES ended the year at 2,891 billion cubic feet on December 30. Stocks were -293 billion cubic feet (-9%) below the pre-pandemic five-year seasonal average down from a deficit of -71 billion cubic feet (-2%) on December 16, the result of a heavy weather-driven depletion in the final two weeks of the year:

U.S. NON-MANUFACTURING businesses reported an unusually sharp deceleration in activity in December. The Institute for Supply Management’s purchasing managers’ survey, which covers services, construction, mining and real estate, slumped to 49.6 (8th percentile for all months since 1997) in December from 56.5 (63rd percentile) in November and 54.4 (35th percentile) in October.

Non-manufacturing activity has been slowing in line with the manufacturing sector over the last 12 months  following the post-pandemic boom. The ISM non-manufacturing index is more volatile than its manufacturing counterpart, so the sudden deceleration should be treated with extreme caution. But if confirmed in the next couple of months it would indicate the business cycle downturn is spreading from merchandise to services:

Best in Energy – 19 December 2022

U.K. parliament warns hydrogen is not a panacea

Employment transition and future energy system

Europe’s challenge to refill gas storage in 2023

ING bank closes offices to conserve energy ($BBG)

U.S. SPR to purchase small amount of crude oil

U.S. shale chief warns against more drilling ($FT)

China set for surge in coronavirus cases ($BBG)

Australia/China try to mend relations ($BBG)

U.S. southeast prepares for cold snap ($BBG)

U.K. utilities warn of cash crunch risk ($FT)

U.S. WELL DRILLING shows signs of having hit a peak and starting to fall as the sector responds to lower prices. The number of active rigs targeting oil or gas has fallen in the most recent two weeks and is no higher than at the end of October. As a result, the rig count has increased by an average of just +1.0 per week in the last 13 weeks:

Best in Energy – 2 December 2022

Japan explores strategic LNG reserve ($BBG)

U.S./Russia signal readiness for negotiations

U.S. DOE wants to halt SPR sales ($BBG)

Energy prices spur interest in efficiency

U.S. ethanol blending rate at record high

U.S. refiners set to buy Venezuelan crude

Cybersecurity and the internet of things

NORTHERN EUROPE is forecast to experience colder-than normal temperatures through the first half of December, which will boost gas and electricity consumption. The European Centre for Medium-Range Weather Forecasting is predicting colder-than-average seasonal temperatures for the weeks from December 5 to 12 (first chart) and December 12 to 19 (second chart):

U.S. MANFACTURERS reported business activity started to decline last month, for the first time since the first wave of the pandemic. The ISM composite index slipped to 49.0 in November (22nd percentile for all months since 1980) from 50.2 in October (31st percentile) and 60.6 a year ago (96th percentile).

Manufacturing growth has decelerated progressively this year and activity now shows the first sign of falling in absolute terms. Firms signalled a further decline in new business last month. The new orders component slipped to just 47.2 in November from 49.2 in October and 61.4 a year ago. It is well-below the threshold dividing expanding activity from a contraction – implying activity is likely to slow further over the next few months:

Best in Energy –  24 October 2022

Russia oil exports will be able to evade price cap

Russia’s nuclear forces – command and control

China boosts diesel and jet exports in September

U.S. shale producers disregard SPR refill offer

U.S. oil firms reluctant to increase output ($WSJ)

Southern California’s port backlog clears ($WSJ)

Schlumberger rebrands itself as SLB

U.S. SPR used more actively ($FT)

U.S. gas flows in 2021 (Sankey diagram)

Venezuela’s opposition seeks deal ($FT)

UN climate talks lose momentum ($BBG)

EUROZONE manufacturers report the sector has entered recession, based on preliminary results from the monthly purchasing managers survey. Partial results show the manufacturing activity index slipped to just 46.6 in October (14th percentile for all months since 2006) from 48.4 in September (24th percentile):

EUROPE’s temperatures are expected to be at or above the long-term seasonal average during the three months from November to January, according to the European Centre for Medium-Range Weather Forecasting. Mild temperatures through October and the relatively warm outlook for the first part of the winter have contributed to downward pressure on the region’s gas futures prices:

Best in Energy – 19 October 2022

Global freight’s peak season is fizzling out ($WSJ)

EU industry at risk from high energy costs ($FT)

OPEC⁺ and the U.S./Saudi diplomatic relationship

EU explores multiple price caps for imported gas

U.S. SPR will buy oil if futures prices fall to $67-72

(see also text of final rule)

MIDDLE DISTILLATES (focusing here on diesel and gas oil but excluding kerosene and jet fuel) are the most cyclically sensitive part of the oil market. If there is a global economic slowdown in 2023 it will hit distillate consumption hardest. Conversely, if distillate shortages ease it must come about through a slowdown in global growth:

EUROPEAN GAS PRICES are softening throughout the remainder of 2022 and 2023 in response to a near-record refill season, high gas inventories, warmer than average weather forecasts for the first part of winter, and the prospect of reduced consumption from energy-intensive industries:

Best in Energy – 15 September 2022

[MUST READ] China focuses on self-reliance ($FT)

Remote work likely to persist after pandemic ($WSJ)

U.S. shale firms won’t boost oil and gas output ($FT)

U.S. SPR’s role in the oil market is changing ($BBG)

U.S. gas consumption forecast to hit record in 2022

Germany warns about energy risk from cold winter

China planner warns against yin-yang coal prices

China’s continued drought in Yangtze basin (trans.)

U.S. Northeast fears fuel shortages in event of rail strike

LVMH to turn off store lighting overnight to save power

Eiffel Tower to turn off lights earlier to save power ($WSJ)

U.K. GAS AND ELECTRICITY consumption has not shown a significant decline so far in response to higher prices. I spent a large part of yesterday trying to find a price response in the available official consumption statistics without success. The charts are below. But there are some important limitations:  

  • Electricity consumption data is only available through June and gas data is only available through March owing to publication delays.
  • Most of the rise in prices has occurred since April with another big increase scheduled to take effect from October.
  • Heating demand and bills are lower in the summer months reducing consumers’ sensitivity to prices.
  • Domestic and commercial consumption patterns have been distorted by the lockdowns in 2020/21 and then re-opening in 2022.
  • Electricity and gas consumption has been on a long-term downtrend as a result of improvements in insulation and efficiency.
  • Electricity and gas consumption shows significant annual variation depending on winter temperatures.

Once these factors are taken into account, there is no evidence of a significant reduction in gas and electricity use by households, offices and commercial premises so far. If reductions are going to occur, it will be later this year and into 2023:

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Best in Energy – 26 April 2022

China’s prolonged lockdowns hit commodity prices

EU explores options for Russian oil sanctions ($FT)

China top planner on the epidemic’s impact (trans.)

Russia/India hold talks on coking coal payments

U.S. gas-fired combined cycle electricity generators

SPR releases – authority, impact and replenishment

Whirlpool financials hit by inflation and slower sales *

* Rapidly rising prices and falling real incomes are encouraging households to postpone purchases of expensive durable goods. Reductions in durables spending often signal a slowdown in the business cycle. According to economist Robert Shiller:

“A recession, for example, is a time when many people have decided to spend less, to make do for now with that old furniture instead of buying new, or to postpone starting a new business, to postpone hiring new help in an existing business, or to express support for fiscally conservative government.” (“Narrative economics”, American Economic Association presidential address, January 2017).

U.S. HOUSEHOLDS overwhelmingly believe now is a “bad time to buy” major durable goods owing to high prices. In the University of Michigan’s latest monthly survey of consumers conducted in March, 57% of respondents said it was a bad time to purchase a major household durable item, down slightly from a record 59% in February, but otherwise the highest level since 1980. Durables are the most cyclically sensitive part of consumer spending. Spikes in the “bad time to buy” measure usually correspond to end-of-cycle recessions or at least mid-cycle slowdowns. In the survey, 42% of respondents said it was a bad time because of high prices, 7% cited uncertainty about the future, 4% said they couldn’t afford it, and only 1% cited interest rates:

FRANKFURT’s heating demand, a proxy for the major population centres of Northwest Europe, has been almost -11% below the long-term seasonal average this winter, with the heating season almost over, which has eased some of the pressure on gas inventories and helped avoid an even sharper spike in prices:

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Best in Energy –4 April 2022

[MUST READ] Sanctions and a long conflict

[MUST READ] Wars and settlements ($BBG)

SPR sale – formal announcement and details

France’s electricity grid calls for conservation

China to buy Russia LNG via middlemen ($BBG)

Australia’s export earnings boosted by conflict

EU/Russia standoff over gas payments

U.S. jet fuel prices surge on East Coast

Aviation recovery at risk from fuel prices ($FT)

Sri Lanka leader imposes state of emergency

United Kingdom takes Russian diesel delivery

U.S. MANUFACTURERS reported a less-widespread increase in business activity last month. The ISM composite index fell to 57.1 in March from 58.6 in February and the lowest reading since Sep 2020 as the expansion decelerates. There was also a sharp deceleration in new orders growth in March. The ISM new orders index slipped to 53.8 from 61.7 the month before, consistent with a slowdown in the business cycle ahead:

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Best in Energy – 1 April 2022

White House statement on oil release

IEA holds emergency meeting on oil

EU/Russia stand off over gas payments

U.S. homes transition to LED lighting

BRENT spot prices and calendar spreads have softened significantly since the White House announced the release of up to 180 million barrels from the U.S. strategic petroleum reserve. The six-month spread has narrowed to a backwardation of $9 per barrel, the lowest since before Russia’s invasion of Ukraine, down from $18 a week ago and a record $21 earlier in March:

U.S. SPR crude inventories will fall to less than 400 million barrels, the lowest since 1984, if 180 million are released over the next six months as briefed by the White House:

EUROZONE manufacturers reported a less widespread expansion in business activity this month. The purchasing managers’ index fell to 56.5 in March from 58.2 in February. The composite index is still well above the 50-point threshold dividing expanding activity from a contraction. But the index is at the lowest level for 14 months and in the 79th percentile since 2006 down from the 92nd percentile in December:

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