Best in Energy – 4 April 2023

OPEC⁺ output cut aims to deter short selling ($BBG)

OPEC⁺  v. central banks in fight over inflation ($BBG)

OPEC⁺  production cut – why now?

OPEC⁺ output cut – why now? ($FT)

U.S. gas production is still increasing

California’s snowpack highest since 1983 ($WSJ)

California’s in-state hydro generation set to rise

U.S. energy consumption projection through 2050

China deploys almost continuous at-sea deterrent

Travel-to-work and the 30 minute average commute

BRENT calendar spreads had already tightened significantly between March 20 and March 31, then tightened further after Saudi Arabia and its allies in OPEC⁺ announced production cuts on April 2. The six-month spread tightened from a backwardation of $1.13 (59th percentile since 1990) on March 20 to $1.46 (64th percentile) on March 31 and then $3.43 (88th percentile) on April 3. The spreads imply traders were not anticipating a significant oversupply or a large increase in inventories prior to the OPEC⁺ cut. Following the cut, however, traders expect the market to become very tight later in 2023:

Best in Energy – 1 March 2023

India’s coal producers see booming fuel demand

China’s massive deployment of wind generation

Northwest Europe forecast cold winter end ($BBG)

India heatwave boosts power use to record ($BBG)

U.S. consumer confidence and expenditure ($BBG)

U.S. shale firms squeezed by escalating costs ($FT)

Colorado refinery shut after cold weather damage

U.S. electricians in increasing demand ($WSJ)

Russia/China nuclear cooperation ($BBG)

Central banks fear impact of rising wages ($FT)

CHINA’s manufacturers reported the most widespread rise in business activity for over a decade as the economy rebounded after the end of coronavirus lockdowns and the passing of the epidemic’s exit wave. The official purchasing managers’ index surged to 52.6 in February, the highest since April 2012, and up from just 50.1 in January 2023 and 47.0 in December 2022. The index was in the 96th percentile for all months since 2011 pointing to a very broad upturn in activity:

NORTHWEST EUROPE is more than three-quarters of the way through the heating season. Frankfurt in Germany has experienced 1,377 heating degree days so far this winter compared with a long-term seasonal average of 1,673, a deficit of almost 18%, reducing heating demand and easing the pressure on gas inventories and prices:

Best in Energy – 3 February 2023

China imports Russian fuel oil

Iraq hit by severe dollar shortage

U.S. refiners prepare to cut output

U.S. renewable diesel expansion

Freeport LNG requests restart

U.K. experiences no major storms

EU/Russia energy flows ($WSJ)

CIA chief on U.S./China relationships

U.S./China balloon overflight  ($BBG)

U.S. GAS PRICES have fallen less than $2.60 per million British thermal units from more than $9 six months ago. In real terms, prices have fallen to just the 3rd percentile for all months since 1990 down from the 86th percentile in August 2022:

Best in Energy – 2 February 2023

[MUST READ] Battery manufacturing ($FT)

Japan’s utilities try to diversify coal sourcing

Asia crude imports at record high in January

EU to launch global LNG price assessment

EU will need to cut gas use in winter 2023/24

U.S./Philippines reach deal on military bases

U.S. senators try to ban SPR oil sales to China

Qatar/Airbus reach aircraft settlement ($WSJ)

FRANKFURT, a proxy for northwest Europe, reached roughly 60% of the way through the winter heating season on February 1. So far the accumulated heating demand has been -17% below the long-term average and is the lowest since 2015/16 and before that 2006/07. But after an exceptionally long period of mild temperatures between December 19 and January 15, temperatures have turned significantly colder, causing the heating deficit to narrow slightly:

Best in Energy – 16 January 2023

[MUST READ] U.S. shale revolution has ended ($FT)

EU boosts diesel imports from Russia ahead of ban

Iran oil exports rise as sanctions enforcement eased

India oil imports from Russia at record high ($BBG)

Iran hit by cold weather-related gas shortage ($BBG)

U.S. gas output growth set to decelerate as prices fall

U.S. oil refinery distillation unit to start up in Q1 2023

Russia’s crude oil exports able to avoid G7 sanctions

Germany boosted non-Russian coal imports in 2022

U.S. heating oil stocks are more comfortable ($WSJ)

U.S./Taiwan relations and next election cycle ($FT)

FRANKFURT and the rest of Northwest Europe are roughly half-way through the 2022/23 heating season. In the three decades between 1981 and 2010, on average 50% of heating degree days and heating demand at Frankfurt occurred before January 15. For London and southeast England, the half-way point arrives a few days later on January 23. So far this winter has been much milder than average. Frankfurt had accumulated 860 degree days up to January 15 compared with a long-term average of 1,078:

Best in Energy – 11 January 2023

U.S. energy transition hits workforce shortage

FedEx cuts parcel deliveries on falling demand

India considers temporarily lifting solar tariffs

Europe’s mild winter increases drought threat

EU regulator launches LNG price assessment

Plastics boost petroleum consumption ($BBG)

Chesapeake’s recovery after insolvency ($WSJ)

U.S. electricity price volatility

Quantum computing ($FT)

EUROPE’s gas inventories are rapidly nearing a record high for the time of year following warmer than normal temperatures and reductions in industrial consumption. EU28 inventories were 937 TWh on January 9 closing in on the seasonal record of 944 TWh set in winter 2019/20.

Stocks were +247 TWh (+36% or +2.37 standard deviations) above the prior ten-year seasonal average up from a surplus of +92 TWh (+10% or +0.86 standard deviations) at the start of the winter season on October 1. The storage surplus is still increasing.

Inventories are projected to reach a post-winter low of 591 TWh with a probable range of 460 TWh to 749 TWh. If that proves correct, storage facilities would end the winter 52% full, with a likely range from 41% to as much as 66%:

Best in Energy – 3 January 2023

Europe’s energy crisis eased by mild weather ($BBG)

U.S./Venezuela crude oil trade set to resume

Russia/China struggle to bridge gaps on Ukraine

France energy security improves on mild weather

U.S. shale oil production growth slows in 2022/23

U.S. winter storm reveals energy fragility ($BBG)

U.S. regional indicators point to future recession

Semiconductor market moves into surplus ($WSJ)

Global supply chains starting to normalise ($WSJ)

Tesla discounts to clear excess inventories ($WSJ)

United Kingdom explores more steel subsidies ($FT)

CHINA’s manufacturers reported a severe contraction in business activity in December as coronavirus infections surged following the end of the government’s suppression policy. “The epidemic has had a great impact on the production and demand of enterprises, the arrival of personnel, and logistics and distribution,” according to the National Bureau of Statistics. The purchasing managers index fell to 47.0 (1st percentile for all months since 2011) in December down from 48.0 in November (2nd percentile) and 50.1 (26th percentile) in September:

NORTHWEST EUROPE’s temperatures ended 2022 much higher than normal, sharply reducing gas consumption and pulling down prices. On December 31, the average temperature at Frankfurt in Germany was almost +14°C higher than the long-term seasonal average. Frankfurt has experienced 764 cumulative heating degree days so far in winter 2022/23 compared with a seasonal average of 901, a deficit of -15%:

Best in Energy – 16 December 2022

Lithium prices double on output deficit

Global coal consumption hits record high

China braces for impact of rural epidemic

ICE warns it could relocate TTF gas futures

Russia crude sold to India under $60 ($FT)

China experiences intense cold snap (trans.)

Texas oil production hit by seismicity limits

EUROPE’s seven-largest gas consuming countries (excluding the United Kingdom) reported consumption was down -21% in October compared with the same month a year earlier, and down by a similar percentage compared with the ten-year average, as a result of high prices, conservation, and milder-than-normal temperatures in the second half of the month:

U.S. MANUFACTURING output shows signs of peaking. Production was up by just +1.4% in November compared with the same month a year earlier, the smallest increase for almost two years, and the growth rate has been decelerating progressively since February:

Best in Energy – 9 December 2022

China’s hesitant exit from coronavirus lockdowns

Germany accelerated floating LNG rollout ($WSJ)

Oil prices fall despite G7 Russia price cap ($FT)

U.S. grid-scale battery storage to triple by 2025

U.S. shale output has delinked from prices

U.S. CONTAINERISED rail freight in October was running at the slowest seasonally adjusted rate since 2013, reflecting weakness in the manufacturing economy and cutting consumption of diesel:

LONDON temperatures were -6°C below the long-term seasonal average on December 8, stretching the transmission system to the limit, as solar generation faded and demand ramped up in an unusually frosty early evening. There were repeated periods of under-frequency on the transmission system in the run up to the evening peak, with load exceeding generation and reserves running low. National demand approached the maximum triad levels set in winter 2021/22, despite extremely high electricity prices, triad avoidance behaviour by major electricity users, and calls for household and commercial conservation:

Best in Energy – 30 November 2022

Guangzhou and other cities see more protests, arrests

France says most energy use reduction due to weather

Europe accelerates deployment of domestic heat pumps

(see also IEA report on future of heat pumps)

Europe increases LNG imports from Russia ($BBG)

EU struggles to agree caps on oil and gas prices ($FT)

Europe’s energy price controls cost €700 billion ($BBG)

Los Angeles port loses cargo share ($BBG)

CHINA’s official Xinhua news agency and other government-run sites are running multiple stories and commentaries emphasising epidemic controls must be applied with “softness”, “greater precision”, ensuring daily life and healthcare continues.  There has been a marked change of tone from the previous military-themed rhetoric and analogies to battling the epidemic, with greater focus on resuming as much normality as possible. Like other governments facing widespread social unrest, China appears to be pursuing a mixed strategy of rolling up protestors, intensifying street policing, while trying to make selective concessions to keep the majority of the population in line by relaxing epidemic controls to reduce their social and economic costs.

BRENT’s calendar spreads for the first part of 2023 have slumped from a steep backwardation at the start of November close to contango as the end of the month nears. The nearest to deliver January-February spread is no longer a useful indicator as the January contract nears expiry and there is insufficient liquidity to make the price representative. But the more active February-March and March-April spreads are now trading close to flat from backwardations of around $1.50 per barrel at the start of the month.

Refiners and traders seem to have accelerated purchases ahead of the introduction of the planned G7 price cap on Russia’s crude exports from early next month to protect themselves against any possible disruption. Concern about the impact likely drove up prices and spreads in September and October.

But the cap itself now appears likely to be set at a relatively high level with relaxed enforcement, at least initially. The result is a marked softening in the market. At the same time, the business cycle continues to weaken across most of Europe and Asia, dampening crude demand. All of this is weighing on prices and spreads for nearby futures contracts with deliveries in early 2023: