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Fifty. The Energy Report
By: Phil Flynn | February 17, 2023

Commodities are getting crushed as two Fed officials are saying a 50-basis point interest rate increase is in the cards, helping the US dollar to scale to new heights. Both the Federal Reserve Bank of Cleveland President Loretta Mester and St. Louis President James Bullard rang a hawkish tone, suggesting that the economy and the consumer was too strong for its own good. Even European Central Bank Executive Board member Isabel Schnabel warned that markets risked underestimating inflation, raising concerns of more global interest rate increases but even that was not enough to see a surge in the greenback and an exit from commodities. Federal Reserve Bank of Cleveland President Loretta Mester said that there is a “compelling economic case” to raise rate aggressively.

Where is top Chinese Deal Maker Bao Fan. Bloomberg News reports that while there’s no indication the China Renaissance Holdings Ltd. chairman has become a target of regulators, the investment bank said late Thursday it had lost contact with Bao. The banker’s family was told he’s assisting an investigation, a person familiar with the matter said. This story is raising the risk factors for the Chinese stock market that had been benefiting from the covid reopening play.

I would like to tell you the selling is all macro related but there are still concerns about the huge crude oil supply increase this week. It took an almost a 17 million barrel adjustment to arrive at that number and it still is a headwind especially against a backdrop of the promises of more aggressive interest rate increases by global central banks.

The products are still seeing signs of tightness. John Kemp at Reuters wrote that, “Resurgent passenger aviation following the coronavirus pandemic has created shortages of jet fuel, pushing up airlines’ operating costs and fares. U.S. jet fuel inventories stood at just 36.5 million barrels on February 10, according to data from the U.S. Energy Information Administration (EIA). Stocks were at the lowest for the time of year since 1985 and 4.3 million barrels (-11% or -1.94 standard deviations) below the prior ten-year seasonal average. The deficit has narrowed from 6.3 million barrels (-15% or -2.83 standard deviations) at the start of October 2022, but inventories remain stretched.

How is the global green energy transition going? Oil Price reports that, “A recent study published by Nature Energy suggests that up to 141 million people could be pushed into extreme poverty by high energy prices. According to the study, total energy costs of households are set to jump by between 62.6% and 112.9%, leading to a 2.7% to 4.8% increase in household expenditures. While inflation may have peaked, prices have not and an increasing number of people are having to live without electricity. So why don’t they get jobs making wind turbines?

Natural gas has not found its bottom yet. The Freeport LNG export terminal restart is not happening fast enough and in Europe because of a historically warm winter, they are flush with supply. The FT reported, “The price of European natural gas has fallen below €50 per megawatt hour for the first time in almost 18 months, a landmark moment in the energy crisis as mild weather and ample storage helped temper once runaway prices. European gas prices have fallen as much as 85 per cent from their peak of more than €300/MWh in August 2022, when Russia’s deep cuts in supplies to Europe after its full-scale invasion of Ukraine sparked concerns of possible blackouts.

Petroleum in the short term will be dictated by a strong dollar while refineries are in maintenance. Traditionally in February prices can be weak like we are seeing but could turn around dramatically when refineries start to reopen ahead of the summer driving season.

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