Best in Energy – 28 July 2022

EU/Russia gas pipeline flows fall sharply

U.S. frackers warn of supply chain limits

China’s plan to centralise iron ore purchasing

U.S. leaders embrace subsidies, tariffs ($WSJ)

Grid-scale batteries used for price response

U.K. households face winter bill crisis ($FT)

West London’s local power constraint ($FT)

U.S. PETROLEUM inventories depleted by -9 million bbl in the week to July 22, with declines in commercial crude (-5 million), gasoline (-3 million), and distillate fuel oil (-1 million) as well as a drawdown in the SPR (-6 million), partially offset by increases in propane (+3 million) and other oils (+3 million). Petroleum inventories have depleted in 80 of the last 108 weeks by a total of -438 million bbl since the start of July 2020. Total stocks are at the lowest seasonal level since 2008 and show no signs of rebuilding:

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Best in Energy – 20 July 2022

EU asks member countries to cut gas consumption

EU countries most vulnerable to Russian gas cut off

(see also IMF working paper on gas shut off impact)

EU/Russia sanctions eased on food-related exports

Electric-vehicle charger market is growing rapidly

Bangladesh to start rationing electricity and gasoline

China boosts oil imports from Russia at Saudi expense

LONDON’s brief but exceptional heatwave has already ended, but 24-hour temperatures on both July 18 (27.3°C) and July 19 (27.4°C) were more than +8°C above the long-term seasonal average, straining transportation infrastructure and the electrical network.

In a normal year, London temperatures peak between July 20 and August 5, the result of seasonal lag. But weather conditions this year coincided with and compounded the normal seasonal peak pushing daily temperatures far above normal. Temperatures on both days were 2.2-2.6 standard deviations above the 2013-2021 average:

U.S REAL AVERAGE WEEKLY EARNINGS were down by almost -4.5% in June 2022 compared with June 2021, as inflation outstripped wage increases, underscoring the intensity of the squeeze on incomes and spending power:

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Best in Energy – 15 July 2022

White House downplays hopes for more oil

Middle East imports more Russian fuel oil

Japan plans reactor restarts before the winter

United Kingdom heads for winter crisis ($BBG)

Germany is moving into a recession ($BBG)

ERCOT confident will avoid blackout ($BBG)

U.S. household finances and inflation ($WSJ)

Russia/NATO conflict is test of resolve ($BBG)

Central banks turn hawkish on inflation

U.S. CENTRAL BANK is expected to raise short-term interest rates to 3.50-3.75% by February 2023 up from 1.50-1.75% at present to curb inflation. From the second quarter of 2023, however, policymakers are expected to start reducing interest rates as the economy slows and inflation decelerates:

U.S INTEREST RATE traders anticipate a recession has become virtually certain following the continued acceleration of inflation. The yield curve spread between 2-year and 10-year maturities is now in the 98th percentile for all months since 1990:

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Best in Energy – 14 July 2022

Smart sanctions on Russia’s petroleum exports¹

EU prepares for gas shortages in winter 2022/23

Biden wants sanctions and lower oil price ($FT)

Berkshire Hathaway boosts Occidental ownership

China studies ending Australia coal ban ($BBG)²

ERCOT again appeals for electricity conservation

(see also ERCOT’s alert notice

Bolton boasts about helping plan coup attempts⁴

Urban heat islands and summer electricity ($BBG)

¹ This paper by Harvard’s Craig Kennedy published in April appears to be an early version of the price-cap plan the U.S. Treasury Department is advocating to the European Union, Japan, India and China.

² Bloomberg reports Chinese officials are preparing to recommend the lifting of the country’s ban on coal imports from Australia. The proposal is framed as a policy response to concerns about coal shortages stemming from sanctions on Russia. But China does not need Australian coal at the moment given the slowdown in the domestic economy, rapidly rising domestic coal production, and the huge increase in hydropower generation. The proposal therefore appears to be primarily diplomatic – part of détente between China and the new government in Canberra. The question is what China would hope to receive in return: de-escalation of the conflict, generalised goodwill and a reset in the relationship, or something more concrete?

³ Visible only to IP addresses in the United States or via a VPN

⁴ U.S. government involvement in the overthrow of foreign governments is widely known, including Iran (1953) and Chile (1973). But it is rare for a recently serving senior official to acknowledge the fact. There is always a large gap between what we “know” in the sense of being overwhelmingly probable and what we “know” in the sense of being able to prove to the satisfaction of audiences, editors and lawyers. Indiscretions by former officials are useful because they move topics from the known-suspected to the known-proven category which makes it much easier to analyse and write about them.

U.S. SERVICE SECTOR prices climbed at an annualised rate of almost +10% in the three months from April to June, a clear sign the economy is overheating. Services inflation is running at some of the fastest rates for 60 years. The three-month rate is in the 93rd percentile for all similar periods since 1960:

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Best in Energy – 13 July 2022

Baltic grids prepare to synchronise to EU rapidly

OPEC predicts oil consumption to rise in 2023

Russia’s fuel exports to Middle East surge ($BBG)

China hydropower generation hits record high

U.S. homes with electric-only energy systems

China hesitates to mandate vaccination ($BBG)

Rapid inflation and its many discontents ($FT)

BRENT’s calendar spread from December 2022 to December 2023 has softened to a backwardation of $8 per barrel from $16 in early June as traders anticipate a cyclical economic slowdown will relieve some of the shortage in oil supply next year:

TEXAS electricity consumption increased at a compound annual rate of +1.5% over the last 20 years, reaching 427 billion kWh in 2021, up from 318 billion kWh in 2001:

U.K. REAL GDP rose by +0.51% in May from April, the fastest increase for four months, with particularly large increases in manufacturing (+0.87%) and construction (+1.54%):

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Best in Energy – 6 July 2022

India limits gasoline and diesel exports

China issues new fuel export quotas

EU relaxes oil sanctions on Venezuela

Global LNG: trade report and statistics

U.S. recession indicators mixed ($WSJ)

Qatar is big winner from gas war ($FT)

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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Best in Energy – 21 June 2022

China power generators relying on lower-quality coal

White House considers suspension of U.S. gasoline tax

Russia becomes top crude oil supplier to China in May

U.S./Germany sign firm LNG export agreement ($WSJ)

Australia’s power shortage will spur more rooftop solar

Iron ore prices fall on China’s building downturn ($FT)

United Kingdom addicted to currency devaluation ($FT)

China scrutinises Musk’s dual-use technologies ($FT)

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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Best in Energy – 17 June 2022

White House mulls export gasoline and diesel controls ($BBG)

Australia threatens export controls on coal ($FT)

U.S. energy secretary to talk with oil refiners

Australia’s power generation shortage eases

Qatar/China negotiate joint ventures in LNG

U.S. power prices forecast to rise

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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Best in Energy – 16 June 2022

U.S. central bank raises interest rate by +0.75%

US/EU concern about insurance sanctions ($FT)

White House complains about refining margins

U.S. refiners respond to president’s letter

EU/Russia gas flows fall sharply

Australia’s electricity market suspension

Australia appeals for power conservation

China to centralise iron ore buying ($FT)

Biden team divided over economy ($WSJ)

U.S. FEDERAL RESERVE increased its target range for the federal funds rate by +75 basis points to 1.50-1.75%, the largest increase since 1994. In real terms, monetary policy has become increasingly stimulative because inflation has risen faster than rates. The real interest rate had fallen to -5.25% in May 2022 compared with -3.75% in May 2021 and +0.38% in May 2019. The large rise was designed to signal the central bank’s determination to bring inflation under control as well as to start making real interest rates less stimulative:

U.S. PETROLEUM INVENTORIES including the strategic reserve depleted by -3 million bbl to 1,682 million bbl last week. Inventories have fallen in 75 of the last 102 weeks by a total of -435 million bbl since the start of July 2020. Stocks are at the lowest seasonal level since 2008:

U.S. DISTILLATE INVENTORIES rose by +0.7 million bbl to 110 million bbl last week. East Coast stocks increased by +1.2 million bbl to 27 million bbl. But total stocks remain -27 million bbl (-19%) below the pre-pandemic five-year seasonal average. Although inventories have started to accumulate seasonally the deficit is not narrowing because refineries cannot make enough fuel to rebuild stocks:

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Best in Energy – 18 May 2022

EU cannot be a green island in a dirty world ($FT)

Oil consumption and moderate recessions ($BBG)

U.S./EU examine Russia oil embargo + tariff plan

U.K. inflation accelerates to 9% fastest since 1982

China’s LNG imports set to rise from August ($BBG)

U.K. explores extensions for coal and nuclear ($BBG)

Texas electricity supply hit by congestion on grid

German refinery at risk from Russian oil ban ($BBG)

Austria tries to encourage industry to store gas

U.K. orders competition probe into fuel retailing

U.S. MANUFACTURING output in the three months Feb-Apr was almost 6% higher than in the same period a year earlier, showing momentum in the business cycle but also why supply chains are struggling to cope and prices are escalating rapidly. Rapid growth in manufacturing explains why diesel is short supply and prices are escalating:

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