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Chartbook: U.S. crude oil productionOilfield services company Baker Hughes says the number of rigs drilling for oil has risen by 455 in 119 weeks from its post-pandemic low in August 2020, an average of 3.9 per week. Completion rates rather than drilling rates provide a more reliable guide to future trends in production in the short term. The number of new oil and gas wells completed has been broadly stable just below 1,000 per month since March 2022 (“Drilling productivity report”, EIA, Nov. 14). Unless competition rates accelerate, the number of rigs drilling for oil and gas is likely to plateau around current levels, and oil production grow much more slowly in 2023. Related columns:- U.S. oil drilling rises in response to higher prices (Reuters, Feb. 25)- U.S. oil drilling likely to accelerate in 2022 (Reuters, Nov. 17, 2021)John Kemp is a Reuters market analyst.
In real terms, monthly average prices have been between the 76th and the 98th percentile for all months since the turn of the century. Chartbook: U.S. distillate suppliedMANUFACTURING SLOWSMost distillates are used in freight transportation, manufacturing, construction, farming, mining, and in oil and gas production. Distillate consumption is therefore highly sensitive to changes in the business cycle, especially the manufacturing and freight sectors. The slowdown in distillate consumption has been close to what would be expected based on the deceleration in manufacturing. Reduced distillate use would be consistent with an unusual increase in distillate fuel oil inventories reported over the last seven weeks in weekly surveys conducted by the EIA.
Sales over the two most recent weeks totalled 149 million barrels, the fastest rate since early March, in the immediate aftermath of Russia’s invasion of Ukraine. Similar to the week before, last week’s selling was concentrated in crude (-89 million barrels), specifically in Brent (-71 million barrels). Two-week crude sales totalled 137 million barrels, with Brent totalling 100 million barrels, according to position records published by ICE Futures Europe and the U.S. Commodity Futures Trading Commission. The number of crude positions, WTI as well as Brent, fell to just 306 million barrels (9th percentile for all weeks since 2013) down from 443 million barrels (40th percentile) on Nov. 8. The ratio of bullish long positions to bearish short ones fell to 3.28:1 (27th percentile) from 5.36:1 (62nd percentile) two weeks earlier.
LONDON, Nov 28 (Reuters) - Europe's gas inventories are on course to end the winter of 2022/23 at one of the highest levels on record - if prices stay high and provided pipeline deliveries from Russia continue. Exceptionally high prices, energy conservation, and warmer-than-normal temperatures since the middle of October have combined to cut consumption and attract large volumes of imported LNG. Depletions have ranged from as much as -712 TWh in the winter of 2018/19 to as little as -311 TWh in the winter of 2014/15. Related columns:- Europe's gas storage peaks after record refill season (Reuters, Nov. 18)- Europe's gas prices retreat as storage almost full (Reuters, Oct. 13)- Mission accomplished? Europe fills gas storage ahead of schedule (Reuters, Oct. 4)- Europe tops up gas stocks, but winter demand cuts essential (Reuters, Sept. 7)John Kemp is a Reuters market analyst.
Chartbook: India power generationTotal power consumption was broadly stable at 115 billion kilowatt-hours (kWh) in October from a year earlier. But there was a big increase in renewable generation (+3.1 billion kWh) led by solar (+2.1 billion kWh) with smaller contributions from hydro (+0.7 billion kWh) and wind (+0.3 billion kWh). As in China, the massive deployment of renewables is beginning to slow the growth in demand for coal-fired generation. But renewables are starting to bend the curve of coal consumption for power generation and reduce the future trajectory. Related columns:- India’s coal and electricity supplies are more comfortable this autumn (Reuters, Sept. 28)- India’s electricity shortages ease as wind and hydro output rises (Reuters, June 27)- Beset by coal shortages, India’s power grid struggles to meet demand (Reuters, Oct. 12, 2021)John Kemp is a Reuters market analyst.
A bigger than expected build in U.S. gasoline inventories and widening COVID-19 controls in China also added downward pressure on crude prices. Both benchmarks plunged more than 3% on Wednesday on news the planned price cap on Russian oil could be above the current market level. A higher price cap could make it attractive for Russia to continue to sell its oil, reducing the risk of a supply shortage in global oil markets. "When one considers that the current Russian export price is below the proposed limit, the price cap automatically implies uninterrupted Russian exports," said PVM Oil analyst Tamas Varga. EU governments will resume talks on the price cap on Thursday or Friday, EU diplomats said.
In the ten years before the pandemic, distillate inventories declined by an average of more than 11 million barrels over the same period. Between 2010 and 2019, seasonal drawdowns ranged from ranged from as little as 7 million barrels to as much as 21 million barrels. Stocks are still 21 million barrels (-16% or -1.25 standard deviations) below the pre-pandemic five-year seasonal average. But the deficit to the seasonal average has narrowed from 34 million barrels (-24% or -2.05 standard deviations) on Oct. 7. Chartbook: U.S. distillate inventoriesPRICE RESPONSEThere is some evidence high refining margins and prices for diesel and other middle distillates are restraining consumption.
U.S. marginal production (+14.5 million bpd) captured nearly all the increase in global consumption (+14.8 million bpd) between 2009 and 2019. FRACKING TECHNOLOGYIn a narrow sense, the shale revolution refers to the widespread application of horizontal drilling and hydraulic fracturing techniques to increase output from shale and other tight rock formations. Like other technologies, however, shale production has eventually settled into a more mature and conservative phase, hastened by the traumatic shock to oil and gas markets during the coronavirus pandemic. In 2022, the Biden administration has tried to cajole domestic oil producers to increase their output, without much success. U.S. shale producers are expected to account for a much smaller share of global growth in petroleum production and consumption in the next few years.
LONDON, Nov 21 (Reuters) - Oil prices were hit by an abrupt reversal of sentiment last week, with investors selling at the fastest rate for four months, as the economic outlook worsened and fears eased that the G7 price cap on Russian crude would disrupt its exports. The most recent week saw sales concentrated in Brent (-30 million barrels) and NYMEX and ICE WTI (-19 million) with lighter sales in European gas oil (-5 million), U.S. gasoline (-4 million) and U.S. diesel (-4 million). As a result, Brent futures prices and calendar spreads retreated as traders prepared for a relatively hard landing for the global economy which will likely cut oil consumption absolutely or at least relative to the previous trend. Related columns:- Oil investors set for supply fall to offset weak economy (Reuters, Nov. 15)- Hedge funds tempted back into crude oil market by limited supply (Reuters, Nov. 7)- Oil funds trapped between low inventories and slowing economy (Reuters, Oct. 31)- Oil investors on defensive as recession forces intensify(Reuters, Oct. 24)John Kemp is a Reuters market analyst. They do not reflect the views of Reuters News, which, under the Trust Principles, is committed to integrity, independence, and freedom from bias.
LONDON, Nov 18 (Reuters) - Europe’s gas storage probably peaked this week ahead of the winter after a refill season that shattered records for its length and the volume of gas injected into storage sites across the region. Inventories in the European Union and the United Kingdom reached 1,079 terawatt-hours (TWh) on Nov. 13, according to Gas Infrastructure Europe (“Aggregated gas storage inventory”, GIE, Nov. 18). Chartbook: European gas inventoriesEuropean inventories have been boosted by record high prices, government storage mandates, reduced consumption by households and industries, and unusually mild temperatures through October and early November. As a result, Europe’s record refill and plentiful inventories have left consumers in countries such as Pakistan and Bangladesh at risk of gas shortages, rationing and power cuts this winter. Related columns:- Europe’s gas prices retreat as storage almost full (Reuters, Oct. 13)- Mission accomplished?
But zero-emissions sources accounted for almost 74% of the total increase in generation, with thermal generators, overwhelmingly coal, contributing just 26%. Generation from wind farms increased by 100 billion kWh (22%) compared with the previous year, while output from solar power increased by 45 billion kWh (30%). There were smaller proportional contributions to growth from thermal generators (63 billion kWh, just 1%), hydro-electric units (28 billion kWh, 3%) and nuclear (4 billion kWh, 1%). Wind farm capacity increased 17% while solar capacity increased 29% in the first nine months of 2022, compared with the same period of 2021. In absolute terms, coal-fired generation is still rising, but the growth rate has halved over the last decade, and coal generation has been growing more slowly than generation as a whole.
LONDON, Nov 16 (Reuters) - Container freight volumes at the largest U.S. ports were down 3.8% in September compared with the same month a year earlier, confirming the slackening of merchandise trade and downturn in the business cycle. The ports of New York-New Jersey, Los Angeles, Long Beach, Savannah, Houston, Norfolk, Charleston, Seattle and Oakland account for the overwhelming majority of container ocean freight into and out of the United States. Chartbook: U.S. container tradeFreight is reflecting a significant slowdown in consumer spending on merchandise over the last 12-15 months as economies have re-opened after the pandemic and spending has rotated to travel and other services. As the global manufacturing sector contracts, freight volumes are likely to shrink further, which will eventually relieve some of the pressure on diesel fuel supplies. They do not reflect the views of Reuters News, which, under the Trust Principles, is committed to integrity, independence, and freedom from bias.
[1/2] Crude oil storage tanks are seen in an aerial photograph at the Cushing oil hub in Cushing, Oklahoma, U.S. April 21, 2020. In the most recent week, purchases were concentrated on the crude side in NYMEX and ICE WTI (+19 million barrels) and Brent (+10 million). There was smaller buying in U.S. gasoline (+7 million barrels) and U.S. diesel (+4 million) and no change in European gas oil. As a result, the combined crude position has climbed to 443 million barrels (39th percentile for all weeks since 2013), up from 314 million barrels (10th percentile). Related columns:- Hedge funds tempted back into crude oil market by limited supply (Reuters, Nov. 7)- Oil funds trapped between low inventories and slowing economy (Reuters, Oct. 31)- Oil investors on defensive as recession forces intensify (Reuters, Oct. 24)- OPEC⁺ cut draws hedge funds back into the oil market (Reuters, Oct. 10)John Kemp is a Reuters market analyst.
In 2021, India was the world’s third-largest crude importer (214 million tonnes) after China (526 million tonnes) and the United States (305 million tonnes) (“Statistical review of world energy”, BP, 2022). India’s domestic crude and condensate production has been stuck at 30-40 million tonnes per year for the last two decades, data from India’s Ministry of Petroleum and Natural Gas shows. By contrast, domestic petroleum consumption has doubled to 202 million tonnes in 2021 from 103 million tonnes in 2002 (“Snapshot of India’s oil and gas data”, Petroleum Planning and Analysis Cell, Nov. 10). Yellen has become the chief advocate for the price cap concept as the Biden administration attempts to sell the idea to sceptical oil buyers and governments in Asia. But further SPR releases could buy policymakers and India’s refiners time and are likely in the event Russia retaliates against the price cap.
LONDON, Nov 11 (Reuters) - Russia's oil export revenues are at much greater risk from a global economic recession than the price cap being planned by the United States and the European Union. Sanctioned petroleum could only be traded freely below the price cap while unsanctioned petroleum could be traded at any price, including prices well above the cap. If the crude cap is set at $60-65 per barrel, while unsanctioned crude trades at $120, the incentives for circumvention will be enormous. Recession and price capping turn out to be complementary approaches rather than substitutes for reducing Russia’s oil revenues. RECESSION AND ALTERNATIVESIn the event of a recession, consumption of crude and diesel would be hit, reducing the call on Russia’s crude exporters and refineries.
LONDON, Nov 9 (Reuters) - China’s diesel exports accelerated significantly in September after being severely restricted over the previous 13 months, according to data from the customs service. Faster exports will provide some relief amid a global diesel shortage, but are unlikely to be enough to stabilise and rebuild global inventories, or offset any future disruption as a result of sanctions on Russia’s fuel exports. Diesel exports were reduced by a total of 16.3 million tonnes, or 122 million barrels, over 13 months compared with the pre-June 2021 trend. Recently, extra quotas have been awarded, which should help relieve some of the global shortage, provided they are maintained at a higher level. Extra diesel shipments out of China will help, but rebalancing the diesel market still requires slower growth in the global economy and fuel consumption.
The claim was highlighted by conservative political commentator Tucker Carlson, who mentioned it during a segment of his show on Oct. 27 (youtu.be/lUZoli8oekg?t=181)“This country is about to run out of diesel fuel. According to data from the Energy Information Administration by the Monday of Thanksgiving week, that’s 25 days from now, there will be more no more diesel,” he said. EIA DATAThe EIA data for the week ending October 28 showed the United States had “25.8 days” of supply of total distillate. “Days of supply does not consider other sources like the amount of distillate fuel being produced at U.S. refineries and the amount of distillate fuel imported into the United States,” they said. The United States will not “run out of diesel” by the Monday of Thanksgiving week in 2022, industry experts told Reuters.
LONDON, Nov 7 (Reuters) - Prospective disruption to Russia’s petroleum exports from the planned G7 price cap as well as the reduction of OPEC+ production targets are encouraging more hedge funds to build bullish positions in the crude oil market. Hedge funds and other money managers purchased the equivalent of 35 million barrels in the six most important petroleum futures and options contracts in the week ending on Nov. 1. The net position in crude had climbed to 414 million barrels (30th percentile for all weeks since 2013) up from a recent low of 14 million barrels (10th percentile) at the end of September. Since 2013, the median position in crude oil has been just over 500 million barrels, still some 90 million barrels higher than last week. Related columns:- Oil funds trapped between low inventories and slowing economy (Reuters, Oct. 31)- Oil investors on defensive as recession forces intensify (Reuters, Oct. 24)- OPEC⁺ cuts attract funds back to oil market (Reuters, Oct. 17)- OPEC⁺ cut draws hedge funds back into the oil market (Reuters, Oct. 10)- John Kemp is a Reuters market analyst.
Chartbook: European gas inventories and consumptionInventory accumulation since the start of April has been the fastest on record (+770 TWh) and stocks have continued rising much later into the autumn than normal. Onshore storage is 95% full compared with the prior 10-year seasonal average of 89% ("Aggregated gas storage inventory", GIE, Nov. 4). Seven countries (Germany, Italy, France, the Netherlands, Spain, Belgium and Poland) account for 80% of the EU's total gas consumption. Related columns:- Europe’s gas inventories, the risk from complacency (Reuters, Oct. 26)- Europe's gas prices retreat as storage almost full (Reuters, Oct. 13)- Mission accomplished? Europe fills gas storage ahead of schedule (Reuters, Oct. 4)John Kemp is a Reuters market analyst.
The National Bureau of Economic Research (NBER)’s authoritative Business Cycle Dating Committee itself uses a two-part classification – “expansion” and “contraction”. Growth in business activity tends to accelerate and decelerate; outright declines in the level of activity are relatively rare. UNDECLARED RECESSIONSThe NBER’s Business Cycle Dating Committee formally declared only six recessions between 1980 and the end of 2020. They were periods of little or no growth in an otherwise uninterrupted business cycle expansion and tend to be forgotten. Mid-cycle slowdowns also reset the economy by easing capacity constraints and relieving upward pressure on prices and wages.
The previous four weeks saw two large purchases (+62 million and +47 million barrels) and two large sales (-34 million and -50 million barrels) as investor sentiment see-sawed. The mixed picture continued last recent week, with heavy buying of Brent (+29 million barrels), and smaller purchases of NYMEX and ICE WTI (+6 million) and U.S. gasoline (+6 million). But that was partly offset by small sales of U.S. diesel (-4 million) and European gas oil (-2 million). But uncertainty is high and confidence is low, with a net position of just 503 million barrels (33rd percentile for all weeks since 2013). Related columns:- Oil investors on defensive as recession forces intensify (Reuters, Oct. 24)- OPEC⁺ cuts attract funds back to oil market (Reuters, Oct. 17)- Diesel’s gloomy message for the global economy (Reuters, Oct. 14)- OPEC⁺ cut draws hedge funds back into the oil market (Reuters, Oct. 10)- John Kemp is a Reuters market analyst.
LONDON, Oct 27 (Reuters) - U.S. diesel supplies are becoming critically low with shortages and price spikes likely to occur in the next six months unless and until the economy and fuel consumption slow. The deficit has been worsening steadily since the start of the year when stocks were 15 million barrels (-11% or -1.18 standard deviations) below the ten-year average. Chartbook: U.S. distillate fuel oil inventoriesReflecting the intensifying fuel shortage, futures prices for ultra-low sulphur diesel (ULSD) delivered in New York Harbor in December are trading at a premium of $60 per barrel over Brent. If confirmed that would take some of the pressure of distillate inventories. Rebalancing diesel supply will likely require a further rise in interest rates and tighter financial conditions in the United States and other major economies to reduce fuel consumption to more sustainable levels.
Benchmark gas futures prices for nearby months have already slumped as storage space starts to run out, while inventories continue to accumulate at unusually fast rates for the time of year. Calendar spreads from November through January have shifted into contango as inventories are expected to be plentiful in the first part of winter. Inventories are now 128 TWh (14% or 1.20 standard deviations) above the 10-year seasonal average for 2012-2021 (“Aggregated gas storage inventory”, Gas Infrastructure Europe, Oct. 26). Related columns:- Europe's gas prices retreat as storage almost full (Reuters, Oct. 13)- Mission accomplished? Europe fills gas storage ahead of schedule (Reuters, Oct. 4)John Kemp is a Reuters market analyst.
Hedge funds and other money managers sold the equivalent of 50 million barrels in the six most important petroleum futures and options contracts in the week to Oct. 18. Sales were the fastest for three months and came after purchases totalling 109 million barrels over the two previous weeks. But there was continued buying of U.S. diesel (+4 million barrels) and European gas oil (+2 million), extending the pattern from earlier in October. Related columns:- OPEC⁺ cuts attract funds back to oil market (Reuters, Oct. 17)- Diesel’s gloomy message for the global economy (Reuters, Oct. 14)- OPEC⁺ cut draws hedge funds back into the oil market (Reuters, Oct. 10)- Oil investors ready for recession (Reuters, Oct 3)- Hedge funds dump distillates as recession risks intensify (Reuters, Sept 26)John Kemp is a Reuters market analyst. They do not reflect the views of Reuters News, which, under the Trust Principles, is committed to integrity, independence, and freedom from bias.
LONDON, Oct 19 (Reuters) - Global freight volumes have begun to fall as overall consumer and business spending slows and the composition rotates from merchandise back to services after the pandemic. Chartbook: Global freight and manufacturing activityMANUFACTURING STALLSThe slowdown will gradually unblock supply chains and ease some of the intense upward pressure on merchandise prices that has occurred since mid-2020. The World Trade Organization forecasts merchandise trade will increase by just 1.0% in 2023 after rising 3.5% in 2022 (“Trade growth to slow sharply in 2023”, WTO, Oct. 5). The forecast growth in world merchandise trade volumes next year would be among the slowest rates in the last 40 years. The slowdown in industrial output and freight has already been underway for at least the last 3-6 months in most countries.
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