Energy Market Scan - June 8th 2022

JP Morgan CEO warns of an "economic hurricane".

Posted on Jun 8, 2022 by Prakash Kini (PK)

Global Macro

JP Morgan CEO Jamie Dimon says get ready for an economic 'hurricane'. 

He attributes this to the inevitable quantitative tightening by the US Fed and the further impacts of the ongoing Russia-Ukraine war. 

He opined that the US needs to focus on improving domestic policies to unshackle the supply side rather than just making demand-side fixes (and then having to reverse the fixes). 

This follows on the heels of Elon Musk's warning. 

Statistics 

US Natural gas prices touch $9.5/MMBtu 

US Natural gas prices touch $9.5/MMBtu supported by higher domestic and international demand and declining production. 

The drought in the western parts of US, coupled with lack of hydro electric generation is also putting pressure on gas fired plants and gas prices.

The one-year calendar spread has moved into a record backwardation of almost $4 per million British thermal units as traders anticipate stocks will remain tight. 

High prices signal the need to reduce consumption, including by switching from gas-fired to coal-fired generation as much as possible, while maximizing drilling and production. 

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Saudi Arabia raised July crude prices for Asian buyers

Saudi Arabia raised July crude prices for its Asian buyers to higher-than-expected levels. 

Vegetable Oil prices drop as Indonesia retracts palm oil export ban 

FAO Vegetable Oil Price Index fell 3.5% in May.

Two reasons being cited are Indonesia retracting palm oil export ban and sluggishness in rapeseed oil demand due to high prices

Freight, Shipping & Logistics 

Iran accuses Greece and USA of stealing and smuggling oil 

Iran has seized 2 Greek tankers accusing Greece and the USA of stealing and smuggling its oil, one of which was allegedly carrying 106,500 liters of smuggled fuel. 

Discoveries & Launches 

Egypt and Cyprus to start working on gas pipeline end of 2022 

Egypt and Cyprus to start working on the gas pipeline end of 2022. There have been prior attempts to establish a gas pipeline in this region.

In general, as gas prices rise investments in LNG are rising globally.

Geopolitics and War 

European Union to ban insurance for tankers that carry Russian oil 

European Union to ban insurance for tankers that carry Russian oil.

Last week, the European Union (EU) had finally come to an agreement to phase out imports of crude oil from Russia through the sea routes by the year-end. 

Merchant Economics 

Energy G2 makes its first acquisition in the Permian Basin 

Energy G2 announced their first acquisition in the Permian Basin, they acquired the Masten Unit (an oil and gas producing field) (“Masten”) located in the Permian Basin in Levelland, Texas. 

CloudBreak Discovery partially financed this deal.

Supply & Demand 

OPEC+ ups its production plans for July and August by 50%

OPEC+ ups its production plans for July and August by 50% (an additional 75,000 bpd). This coupled with an increase in US SPR reserve withdrawals may provide some relief to oil prices.

US crude oil production remains steady at 11.9 million bpd 

US crude oil production remains steady at 11.9 million bpd as rig counts remained the same.

Read more at: 

Weather 

Severe drought looms in the western US and the African horn

The western US is suffering from an unprecedented drought, the worst in 1200 years. The drought is only getting started but is already having some expected and unexpected impacts. 

Nasa, which monitors changing water levels, is warning that the western United States is now entering one of the worst droughts ever seen. 

"With climate change, it seems like the dominoes are beginning to fall," Nasa hydrologist JT Reager told the BBC. 

California residents have been told to conserve water at home or risk mandated water restrictions as a severe drought on the West Coast is expected to get worse during the summer months.

People have been told to limit outdoor watering and take shorter showers. In Los Angeles, many are being asked to cut their water use by 35%.

Receding water levels in lakes such as Lake Mead are exposing dead bodies, bodies of murder victims from decades back, once hidden by its depths. 

This is severely impacting agriculture and even the price of chickens which in turn leads to food inflation. 

Over in the horn region of Africa, there is an even more severe impact. Agencies are saying that drought threatens starvation, with as many as 17 million people going hungry in three countries in the Horn of Africa.