LONDON’s temperatures have been higher than the long-term seasonal average consistently since the middle of October, reducing heating demand and gas consumption. The number of heating degree days so far this winter has reached just 117 compared with a long-term average of 153. But the city-region is only 10% of the way through the expected heating season. The half-way point doesn’t normally arrive until January 23 as a result of seasonal lag:
NORTHWEST EUROPE has had an unusually early start to the winter heating season. Temperatures at Frankfurt-am-Main were consistently below the long-term average from the middle of September until early October, boosting gas and electricity consumption:
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NORTHWEST EUROPE faces the first test of whether it can lower energy consumption this winter. After warmer than normal temperatures in the first half of September, temperatures were below average in the second half, creating the first significant heating demand earlier than normal:
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¹ Physical crude markets are prompt cash markets and reflect the balance of production, consumption and inventories now. Financial markets reflect expectations about how production, consumption and inventories will evolve over the next 6-12 months or so and are anticipating a recession in future. There is only one price of oil. But near-term shortages are consistent with anticipating future surpluses as a result of an economic slowdown. The current strongly backwardated market structure implies oil is in very short supply right now (which has been evident from large and persistent inventory draw downs) but is expected to be more plentiful in 6-12 months time (as a result of an economic slowdown dampening oil consumption). The price structure embodies the cyclical behaviour of production, consumption, inventories and price levels:
LONDON temperatures continue to rise with the temperature at Heathrow reaching 36.3°C on July 18 up from a high of 30.6°C on July 17, with a further build in heat expected today:
U.K. POWER GRID is relying heavily on gas-fired generation to meet demand during the heatwave. Combined-cycle gas turbines (CCGTs) have been supplying around 50% of total domestic generation in recent days:
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EU28 GAS INVENTORIES are accumulating at a relatively rapid rate of +5.2 TWh per day, notwithstanding the recent interruptions of pipeline supplies from Russia, compared with an average rate of +4.8 TWh per day over the previous ten years:
CHINA’s central-northern region stretching from Ningxia and Gansu in the west to Henan and Shandong in the east, but not including Beijing and the wider Jīng-Jīn-Jì metropolitan region, has been experiencing temperatures well above normal, leading to record electricity consumption in recent weeks. The map also shows below normal temperatures in the south where the monsoon rains have been unusually heavy:
JAPAN has called for electricity conservation especially in Tokyo as temperatures have risen more than +6°C above the long-term seasonal average in recent days and the strong air-conditioning and refrigeration demand has strained the availability of power supplies:
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SOUTHEAST ASIA’s gross refining margin for making gas oil from Dubai crude has climbed to a record $70 per barrel, up from $7 a year ago, as fuel supplies for freight and manufacturing remain at 14-year lows:
EAST CHINA’s temperatures have been 2-5°C higher than the long-term seasonal average since the middle of June, straining power supplies in the Lower Yangtze region and the provinces just to its north, including Jiangsu, Henan and up to Shandong:
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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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CHINA’s Lower Yangtze mega-region, home to more than 225 million people, has experienced an exceptionally mild winter, especially since late February. Cumulative heating demand at Nanjing has been 14.5% below normal so far, implying large savings in gas, coal and electricity consumption, and limiting upward pressure on international LNG and coal prices:
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JAPAN called for electricity conservation as temperatures plunged and stretched power supplies after an earthquake damaged generation last week:
EU+UK GAS inventories are on course to an expected post-winter low of 272 TWh with a likely range of 238-292 TWh. Mild temperatures and ultra-high prices have reduced gas consumption while the region has continued to attract imports. As a result, the post-winter projection has improved significantly from just 215 TWh on Dec. 26. The region still needs to accumulate much higher-than-normal inventories over the next six months but every TWh saved now is one TWh of inventory that will not be needed later:
EU GAS prices have fallen as the inventory outlook has become more comfortable and the likelihood of an immediate cessation of pipeline imports from Russia has appeared to recede. Front-month futures prices have fallen to €96/MWh from a record €227 on March 7. The summer July 2022 to winter January 2023 calendar spread has shrunk to a backwardation of less than €9 from almost €72 on March 7. The market is still signalling the need for a large and urgent refill of inventories but is no longer trading at the crisis levels of two weeks ago:
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