Europe's Gas Crisis Eases Slightly

1. US Crude Supply to Hit Pre-Pandemic Levels by 2023

- The US Energy Information Administration (EIA) revised its outlook for US crude supply marginally downwards, now expecting output to rise by 640,000 b/d year-on-year to a total of 11.8 million b/d.

- At the same time, the EIA increased its pricing outlook for this year, now expecting the annual Brent average to come in at 74.95 per barrel, with WTI at 71.32 per barrel for 2022.

- This would mean that despite the overall conducive environment, the US will return to its pre-pandemic supply levels of 12.4 million b/d only by the end of 2023.

- Much to the chagrin of the Biden Administration, the EIA 2022 gasoline forecast stands at 3.06 per gallon, implying that high outright crude prices will keep gasoline high enough to trigger political concerns.

2. Power Price Surge Weighs on European Growth

- According to Bloomberg estimates, the ongoing power price spike in European countries could knock off 1% off Europe's GDP unless the continent finds a way to tame prices. -

- TTF natural gas futures trade around €85 per MWh, equivalent to $30 per mmBtu, implying that the 300% wholesale gas price last year will most probably continue in 2022.

- Apart from being the main factor behind rising inflation in the European Union, already at 5% on an annualized basis, high power prices also trigger lower utilization rates at energy-intensive plants, making commodities like steel or aluminum more expensive.

- The economic pain has been so far mostly felt in Eastern Europe where electricity bills make up a higher share of the median income, with Estonia and Lithuanian already seeing double-digit inflation rates.

3. Middle Distillates Soar to Strength amid Global Scarcity

- Total Fujairah stocks in the UAE are nearing record lows recorded in early September 2021, with middle distillates seeing the largest week-on-week decline, reported at 25% to a mere 1.25 million barrels.

- Looking back at the past year, the drop in middle distillates has been by far the most marked one, falling 72% since last January, with light distillates off only by 33%.

- In Europe, too, despite some marginal improvements in ARA mid-distillate stocks over the past week, diesel and jet fuel inventories remain at unprecedentedly low levels.

- The inability to increase product stocks signifies that the better-than-expected demand situation has failed to trigger an adequate response from refiners who remain overly cautious.

4. Warm January Eases Europe's Gas Tightness

- Europe has seen warmer-than-usual weather in the first week of January, giving some respite to gas inventories across the continent, though they still remain way below historical averages.

- European gas inventories are expected to drop as low as 15% by the end of the 2021/2022 winter season, implying that buyers must buy 20-25 bcm more than they did last year to cover their needs for the upcoming winter.

- With no specific timeline stipulated for the startup of Nord Stream 2, TTF summer months now trade almost on par with next season's winter months (at €70 per MWh), meaning the European gas tightness will be an all-year-round phenomenon.

- For the first time in several weeks, spot Asian LNG started trading on par with European prices (around $30/mmBtu), easing the influx of US LNG towards the Old Continent.

5. Indonesia Eases Coal Supply Ban

- Indonesia's authorities have allowed 37 coal-laden vessels to leave en route to their final destinations in what seems to be a relaxation of the Asian country's briskly implemented export ban.

- Jakarta introduced the export ban after domestic utilities reported critically low stocks of coal, source to some 65% of Indonesia's power generation, with the Energy Ministry mandating that coal companies comply with the domestic market obligation (DMO) to sell at least 25% production at home.

- Only companies that have complied with the DMO rule were allowed to start exporting, whilst non-compliant entities (so far around 40% of the industry) would face fines.

- At the same time, Indonesia's Energy Ministry keeps on increasing its 2022 coal consumption estimates, now setting it at 127 million tons, roughly 20% of nationwide output.

6. Port Congestion Assumed to Get Much Worse

- Terminal congestion across the Atlantic Basin has grown to new heights, S&P Global Platts reports, triggering higher freight rates as port operational capacities decrease.

- European ports, in particular, were struggling to overcome record high levels of congestion, which have been rising since October, aggravated by unprecedentedly high container dwell times - averaging as high as 51 days in the United Kingdom.

- According to data from Sea-Intelligence, 11.5% of global operational capacity in ports was unavailable in November 2021, compared to usual readings of 1-2%.

- The HARPEX container charter rate index rate has been once again on the increase since mid-December, rising to 3,817, almost fourfold as high as it was last year this time around.

7. Aluminium Prospects Have Energy Crunch Written All Over Them

- Skyrocketing power prices have been triggering a series of production cuts at aluminum plants across Europe, pushing the metal's physical market prices closer to all-time highs.

- Aluminium buyers usually pay the benchmark price on the exchange plus a physical market premium (covering transport costs and taxes) - the latter has shot up to a record $430 per metric tonne this week.

- On the back of Europe already shutting some 650,000 tonnes of capacity so far, the 2022 global balance is almost certain to come in with a deficit, with global consumption reaching 72 million tons.

- Power accounting for at least 40% of smelting costs, Europe has already seen a drastic decline in stocks, a trend also taking place in China (despite historical patterns).