Best in Energy – 25 July 2022

EU softens oil-trading related sanctions on Russia

China’s biggest coal miner boosts output (trans.)

U.K. transmission grid hits capacity limit ($BBG)

Dark tanker market grows competitive

Urban centres and heatwaves ($FT)

Oil exploration accelerates ($BBG)

China’s lessons from Russia’s war

U.S. INITIAL CLAIMS for unemployment insurance benefits have been trending upwards since the start of April, albeit from an exceptionally low base, indicating the labour market may be starting to cool:

BRENT futures for September delivery are showing characteristics of a squeeze, trading in a backwardation of almost $5 per barrel compared with October. But further forward, spreads have softened significantly in recent weeks, as traders anticipate an increased probability a recession will dampen oil consumption:

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Best in Energy – 12 July 2022

Computer shipments tumble on inflation (WSJ)

Iran/Israel war is emerging from the shadows

Texas averts blackouts with voluntary conservation

U.K. utility bills on course for winter crisis

U.K. retail sales fall rapidly as inflation surges

U.S. Treasury lobbies for oil price cap

Chartbook – what causes an energy crisis?*

* I will update this chartbook from September 2021 to illustrate the gas, electricity and oil crisis in 2022 triggered by Russia’s invasion of Ukraine but which was building long before as spare capacity eroded. The current energy crisis has all the four classic elements; (1) pre-crisis erosion of spare production capacity and inventories; (2) failure to appreciate increasing risk and take timely preventive action; (3) a short-term trigger that turns a potential shortage into an actual shortage; and (4) panicked reaction.  

U.S. TREASURY yield curve has continued to invert and is now trading at a premium of 9 basis points between the two-year and ten-year maturities. The yield spread is in 96th percentile for all months since 1980 and implies traders believe a significant economic slowdown is inevitable. The last occasions on which the spread had tightened this much were in January 2007, February 2006, November 2000 and September 1989:

LONDON’s temperatures have climbed sharply since the start of July and are currently +5°C above the long-term average. In contrast to the United States, peak electric load occurs in midwinter rather than midsummer. Solar and wind output is currently favourable. But distribution transformers are vulnerable to the heat:

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Best in Energy – 6 May 2022

[MUST READ] Xi recommits to zero-covid strategy (trans.)

China’s transport problems caused by virus control (trans.)

EU power pricing under scrutiny ($EF)

EU softens planned Russian oil embargo

India to re-open marginal coal mines

U.S. SPR presents plan for partial refill

U.S. oil and gas firms boost expenditure

Russia/Ukraine war is spreading ($WSJ)

DISTILLATESHORTAGES are pulling up crude spot prices and calendar spreads as refiners maximise crude processing to meet demand for freight and manufacturing fuel:

U.S. FINANCIAL CONDITIONS are tightening rapidly as investors and intermediaries anticipate higher interest rates and a slowing economy. The Federal Reserve Bank of Chicago’s national financial conditions index – derived from 105 indicators covering risk, credit and leverage – shows conditions are the tightest since the first wave of the pandemic in 2020, and before that 2016 and 2012. The adjusted index, which attempts to isolate purely financial rather than real-economy factors, is the tightest since 2020 and before that 2011:

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Best in Energy – 22 March 2022

EU divided over response to high gas and power prices

Japan calls for electricity saving after earlier earthquake

Japan’s power supplies stretched after earthquake ($BBG)

Australia/Russia alumina embargo boosts end metal prices

China orders coal stocks replenished immediately ($BBG)

Vitol warns of volatility and margining challenges ($FT)

Jilin hit by widespread coronavirus outbreak (trans.)

Russia’s role as a uranium fuel exporter ($WSJ)

Global uranium supply dominated by Russia

U.S. energy-related CO2  projections through 2050

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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Best in Energy – 21 March 2022

EU divided on whether to embargo Russian oil

India experiences run on retail diesel outlets

EU’s plan to refill gas storage risks price surge

EU’s short-term reliance on Russian gas ($FT)

Saudi Aramco says global oil market is very tight

U.K./Saudi summit and wider political relations

China civilian aircraft crashes with 132 on board

Economic sanctions – measuring effectiveness

Russia/Ukraine war enters attrition phase ($FT)

Russia/Ukraine war enters attrition phase ($WSJ)

China’s epidemic control in rural areas (trans.)

Sri Lanka’s rising energy bill risks default ($BBG)

BRENT futures open interest fell by a record 352 million barrels over the three weeks spanning Russia’s invasion of Ukraine from February 22 to March 15, tumbling to the lowest level since August 2015, as prices spiked higher, volatility increased, margins rose and liquidity dried up:

COAL went from a marginal fuel used in a handful of local areas to become an essential part of England’s pre-industrial economy between 1500 and 1700 – well before the commonly accepted start of the industrial revolution in the later 18th century. By 1700, coal had replaced wood as the dominant fuel for domestic heating in London and most urban centres, and was the main fuel for all manufacturing, including glass-making, salt production, brewing, dyeing, and nonferrous smelting, with the notable exception of iron making:

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