ENERGY AND MATERIALS WEEKLY 12/26/2021

Dec 26, 2021

Just a quick note this week as I know most are on vacation and so are the markets.

CHARTS OF INTEREST THIS WEEK

Coal consumption set to rise into 2024 at least

Southeast Asia is also set to see increases

Oil Open Interest has hit a 6 year low and we are still trading over $72 …this is super bullish going into next year

Russian natural gas flows via Mall now connection on Poland-German border are zero for the sixth straight day as of today (Sunday)

Crude oil seasonal chart. Note mid-February starts the seasonally bullish period. By this time we should be over the Omicron hump. I expect oil to be likely sideways throughout January.

Gasoline… although Biden is celebrating a 10 cent decrease in gasoline over this last month and a half… keep in mind where we are.

Also fun fact: In winter, gasoline blends have a higher Reid vapor pressure, meaning they evaporate more easily to allow gasoline to ignite more easily to start your car in cold temperatures, which results in lower prices at the pump

Global SUV sales set another record in 2021 I keep saying, consumers love the sound of ESG, but are hard-pressed to alter their lives much for it.

US checkpoint travel numbers continue to blow last year out of the water.

Note: there were 2000 flight cancellations in the US Christmas Eve and Christmas day due to staffing shortages

HIGHLIGHTS THIS WEEK

EUROPE

Europe’s energy crisis continues and we are seeing blackouts and more secondary effects on the metals and fertilizer industries

First rolling blackouts KOSOVO

On Thursday, the Kosovo Energy Distribution Services (KEDS) announced rolling two-hour power blackouts for 2 million people due to an “overload” of its electrical grid. 

KEDS asked customers to reduce power given “insufficient internal generation to cover consumption and the global energy crisis.” 

The Balkan country, Europe’s poorest nation, experienced a technical issue at its largest coal-fired power plant that had to shut down last month, which forced the government to import electricity at high prices.

Simultaneously, Serbia was forced to cut electricity to customers, Britain’s network operator issued a power supply warning, and France’s nuclear plant outage, all culminated into a perfect storm of straining the continent’s grid, resulting in reduced power supplies and exorbitantly high prices. -Financial Post

The largest aluminum smelter in Europe has started curbing output due to surging electricity prices

“We’re seeing an existential crisis of the European aluminum industry and other metals-smelting industries that are power-intensive,” Mark Hansen, head of metals trader Concord Resources, said. “It’s not always so easy to get these businesses back in operation”- BBG

8Mt of European ammonia capacity is still impacted by high natural gas prices

NOTABLE: This crisis is going to filter down to all commodities, in particular energy, agriculture, metals.

Last September, I noted that these 3 sectors would remain bullish over the next 5-10 years. This remains the best time ever for commodities investors in a very long time.

OIL

I keep talking about smaller oil producer outages ….well this week add Libya (again) to Nigeria and Ecuador

Libya’s oil output is down 350,000+ b/d on forced outages at key southwestern fields. Gas production is also affected, hitting both domestic supply and exports to Italy -MEES

Ecuador has seen a stunning fall this month

Source: UBS

NOTABLE: This is bullish into next year, even with the lockdowns in Europe and flight cancellations (these are temporary)

COPPER

Over the last six months, both Chile and Peru (the world’s 1st and 2nd largest copper producing countries) have elected left-leaning presidents with a promise of higher taxes to the big mining companies -Javier Blas

NOTABLE: This could force producers to cut production.

LITHIUM

Lithium Miner’s Woes May Exacerbate Strain in EV Supply Chain

Pilbara Minerals Ltd., one of Australia’s top lithium miners, slashed its forecast for shipments, further exacerbating tight supply for the key ingredient in electric-vehicle batteries. 

The Perth-based company cited a raft of issues — from delays in commissioning and ramping up more processing capacity, to unplanned shutdowns and skilled worker shortages — in lowering its guidance for spodumene concentrate shipments to between 380,000 and 440,000 tons in the year ending June 30, from 440,000 to 490,000 tons previously

The global push toward electrified transport has fired up consumption for lithium and the battery material’s prices have more than tripled this year to a record. Miners are scurrying to expand capacity, but they can’t keep up with demand, and market tightness is likely to persist in the near term. -BBG

NOTABLE: This should keep lithium prices elevated for some time

FERTILIZER

Ammonia prices climbed higher as gas prices in Europe hit a new record. Urea prices were little changed. Sulfur prices climbed while phosphates were stable. More trouble may be brewing for the potash market fertilizers

NOTABLE: We are still long IPI and MOS they remain buyable on dips

BLOOMBERG OIL DEMAND MONITOR

Europe Air Travel Rebounds; U.S. Sets Record

A rebound in international air travel and record levels of U.S. petroleum demand are two prominent
signs that the omicron variant of Covid-19 isn’t yet derailing this year’s recovery in global oil demand.


European air traffic and global commercial flight numbers have advanced since dipping in the second half of
November, both in terms of actual flight numbers and when comparing against the same dates in 2019, according to daily tracking by Eurocontrol and FlightRadar24. That bodes well for the hardest-hit portion of the oil market: jet fuel.


The latest set of weekly estimates from the U.S. Energy Information Administration showed that the total amount of oil products leaving American refineries jumped to 23.2 million barrels a day, the most in records back to 1990. Distillate fuel consumption was 19% higher than pre-pandemic levels while gasoline was only slightly above. The next EIA report is due Wednesday. The weekly data can be erratic, leading some analysts to prefer the four-week rolling average.

The number of flights arriving and departing from Austria has climbed rapidly after the country ended a three-week national lockdown on Dec. 12, according to Eurocontrol.

Numbers are also rising from recent lows in nearby countries such as Germany. Switzerland’s departures and arrivals were 22% less than the equivalent period for 2019 in the seven days ended Monday, a substantial rebound from a deficit of 36% as recently as Dec. 11, and back to levels seen in early November

City Traffic

Among the 13 major world cities regularly measured in this monitor, all except one registered a week-on-week
decline in Monday-morning congestion time and showed shorter traffic waiting times than average levels for that time of the week in 2019, according to data compiled by TomTom NV.

Commuting pressure is probably already easing as citizens start taking Christmas and end-of-year holiday breaks,
and will undoubtedly remain low next week as well, affecting comparisons with yearlong average levels. The
exception was Tokyo where Monday congestion was 2% higher than the pre-pandemic average. By comparison, the extra minutes added to journeys in New York and London were down 37% and 67%, respectively, versus 2019.

A broader measure of urban traffic covering all of last week, across 15 large European cities, showed congestion was the highest versus 2019 in 15 weeks, suggesting that the rapid growth of omicron cases hadn’t yet curbed road use

Pivoting again to another set of traffic data — toll roads — shows a noticeable decline in Italy, Spain, and France
over the past three weeks, when compared against the very same week of 2019. This data, from Atlantia Group,
shows, for instance, that toll road traffic in France was 3.3% higher than the 2019 equivalent in the week ended Nov. 21, then slipped to -0.2%, -3.5%, and -6.6% in subsequent weeks, the last being the week ended Dec. 12

During November, French road fuel sales were slightly above pre-pandemic levels, after being below 2019 levels in October, according to data from petroleum industry group UFIP. The sales data coincides with a trend seen in the Atlantia toll road traffic. Should the fuel sales data follow that decline, there may be another dip again when UFIP provides December sales information. The same monthly fuel sales pattern was seen in Italy too

OIL INVENTORIES

GLOBAL CRUDE OIL INVENTORIES

Weekly global onshore crude oil inventories fall to their lowest level for this time of year since 2017

VORTEXA GLOBAL FLOATING STORAGE

FUJAIRAH DATA

As of Monday, December 20, total oil product stocks in Fujairah were reported at 16.273 million barrels. Total stocks rose 961,000 barrels with overall stocks increasing 6.3% week-on-week. This is a reversal of last week’s decline when total stocks were reported to fall 2.9% week-on-week. The total stock build was driven by increasing stocks of light distillates and mild buildup of heavy residues, while middle distillates posted a net draw.

Stocks of light distillates, including gasoline and naphtha, build up by 1.023 million barrels or 24.3% on the week to 5.228 million barrels.

Stocks of middle distillates, including diesel and jet fuel, fell by 168,000 barrels or 7.3% on the week to 2.129 million barrels.

Stocks of heavy residues increased by 106,000 barrels or 1.2% on the week to 8.916 million barrels. -PLATTS

NOTABLE: On a bright note, inventories have declined across the board so far this year as demand has rebounded, led by a 58% plunge in jet fuel, gasoil, and other middle distillates after rising 35% in 2020. Light distillates are heading for a 29% decline this year and heavy distillates including fuel oil for power generation and marine bunkers are down 20.5% since the end of 2020.

EIA