David Fuller and Eoin Treacy's Comment of the Day
Category - Energy

    Euro-Area Inflation Tops All Forecasts With Record 4.9%

    This article from Bloomberg may be of interest to subscribers. Here is a section:

    Anticipating a spike in inflation this month, ECB officials have redoubled efforts in recent days to reassure citizens that they are facing a once-in-a-generation cost-of-living squeeze that won’t endure, driven by energy and a series of one-time factors.

    While President Christine Lagarde is sticking to that script, some colleagues are warning that price pressures might take longer to subside, stoking speculation about the future course of monetary policy. 

    At a Dec. 16 gathering, the Governing Council is set to announce the end of its pandemic bond-buying plan and outline how regular purchases and interest rates will develop as the economy continues its recovery.

    “While energy costs and statistical effects can explain the bulk of this month’s jump, today’s reading also revealed some stronger than anticipated underlying pressure. That will add to concern over upside risks to the outlook, but the ECB is still likely to see inflation falling below 2% by the end of next year.” - Maeva Cousin, senior euro-area economist. 

    This section continues in the Subscriber's Area.

    Doctor Who Saw Omicron Early Says Symptoms Milder Than Delta

    This article from Bloomberg may be of interest to subscribers. Here is a section:

    South Africa announced the identification of a new variant on Nov. 25, saying a few cases had first been identified in neighboring Botswana and then others had followed in Tshwane, the municipal area in which Pretoria is located. The announcement caused a global panic, roiling markets and resulting in travel bans on southern African nations.

    Scientists advising South Africa’s government told a media briefing on Monday that while omicron appeared to be more transmissible, cases appeared to be very mild.

    Coetzee’s patients have been relatively young. A vaccinated 66-year-old patient did return a positive test on Monday but was only mildly ill, she said.

    This section continues in the Subscriber's Area.

    What We Know About the Virus Variant Rocking Markets

    This article from Bloomberg may be of interest to subscribers. Here is a section:

    6. How worrisome is this variant?
    It’s too early to say. The World Health Organization said there are fewer than 100 whole genomic sequences of the new strain available, which could add to the time it takes to study how it compares to previous strains and its impact on Covid therapies and vaccines. Viruses mutate all the time, with the
    changes sometimes making the virus weaker or sometimes making it more adept at evading antibodies and infecting humans. Covid vaccines have shown they are effective against previous variants and pills being developed by Merck & Co. and Pfizer Inc. may also provide new treatments. 

    7. What should we look out for next?
    In the U.S., which recently lifted a year-long ban on tourism from much of the world, top medical adviser Anthony Fauci said he wants to see more data. The European Centre for Disease Prevention and Control assigned the variant -- first detected in South Africa and Botswana -- the category “Variant of Concern.” BioNTech expects the first data from laboratory tests about how it interacts with its vaccine within two weeks.

    This section continues in the Subscriber's Area.

    Oil Advances With Global SPR Release Smaller Than Expected

    This article from Bloomberg may be of interest to subscribers. Here is a section:

    Futures in New York rose as much as 2.6%, erasing earlier losses, after Tuesday’s statement from the White House. While the headline size of the U.S. release is large, a significant chunk of the crude will be borrowed -- to be returned later -- leaving traders expecting tighter balances down the line. The U.S. is making the move in concert with China, Japan, India, South Korea and the U.K.

    Oil prices have hit multiyear highs in recent months amid a global energy crisis that’s added hundreds of thousands of barrels a day to consumption, while the world economy is grappling with surging inflation. The decision puts major consumers on a collision course with OPEC+, which views such a release as unjustified and may reconsider plans to add more supply at a meeting on Dec. 2.

    “From OPEC’s perspective, a cautious ramp-up is still the way to go,” said Damien Courvalin, the head of energy research at Goldman Sachs Group Inc,, in a Bloomberg Television interview on Tuesday. “OPEC has no incentive to increase production aggressively and the SPR release probably comforts them.”

    This section continues in the Subscriber's Area.

    OPEC+ Warns of Response as Biden Poised for Oil Reserve Release

    This article from Bloomberg may be of interest to subscribers. Here is a section:

    OPEC+ officials warned they’re likely to respond to plans by the world’s largest oil consumers to release oil from their strategic stockpiles, setting up a fight for control of the global energy market.

    President Joe Biden is set to announce a plan to release reserves from the Strategic Petroleum Reserve on Tuesday in tandem with China, India, Japan and South Korea, according to officials briefed on the matter. The move, weeks in the planning, is designed to ease this year rise in fuel prices for drivers and businesses.

    OPEC+ delegates said the release of millions of barrels from the inventories of their biggest customers is unjustified by current market conditions and the group may have to reconsider plans to add more oil production when they meet next week.

    The tussle threatens the biggest ructions in the geopolitics of oil since the price war between Saudi Arabia and Russia in early 2020. At stake is the price of the world’s most important commodity as politicians and central bankers contend with the strongest inflationary surge in more than a decade. It also shows the strained relationship between Washington and Riyadh, traditionally a cornerstone of U.S. relations in the Middle East.

    This section continues in the Subscriber's Area.

    Solar demands to normalize in 2022, polysilicon price likely to remain high

    Thanks to a subscriber for this report from ICBC which may be of interest. Here is a section:

    While some factories have already resumed operation after the mandatory power rationing expired, for instance GCL-Poly revealed that their 36,000 tonnes polysilicon factory has already restarted production after making use of the 2-week suspension period to undergo repair and maintenance, most solar materials have also witnessed significant price increase under the adverse effect of supply reduction. One of the clear examples is the sharp price rally of silicon raw material, which is the major material for making polysilicon and on average account for 40% of polysilicon’s production cost. The silicon raw material price rose sharply from USD 2.4/kg in Aug-21 to the peak of USD 10.4/kg in late Sep-21, before gradually normalizing to USD 6/kg in Nov (See Exhibit 3), especially after the Yunnan government decided to restrict the utilization of most energy-intensive production, including silicon raw material, by 90% starting from Sep in 2021. It is noteworthy that Yunnan accounts for 20% of total silicon raw material production in China, while Xinjiang and Sichuan’s market shares are 40% and 15% respectively. In our view, the cost pressure originated from silicon raw material price rally would gradually pass down the supply chain, implying subsequent solar material price hike would continue to emerge in other segments.

    This section continues in the Subscriber's Area.

    Cargill CEO Says Food Prices to Stay High on Labor Crunch

    This article for Bloomberg may be of interest to subscribers. Here is a section: 

    MacLennan said in September that soaring food costs would prove transitory and should dissipate in time. Since then, the rally in energy prices and continued supply-chain snarls have made markets “a lot tighter,” he said.

    “When you have limited supply, that can lead to higher prices,” MacLennan said. However, he noted that China hasn’t been buying crops as aggressively as it did last year, while North American harvests are robust. “That takes some pressure off the system.”

    A search for greener airplane fuel and biodiesel is also pitting food against energy production, leading to tighter edible oil supplies. Prices for palm oil, the world’s most consumed vegetable oil, have soared about 50% in the past year, while soybean oil is up 60%. Canola, also used to make oil, is near a record.

    The food-versus-fuel tension will become more intense than it’s ever been in the last 15 years, MacLennan said. The day will come when more agricultural products will be used for energy than food, so it will be incumbent upon the farmers of the world to innovate and become more productive, he added.

    This section continues in the Subscriber's Area.

    European Gas Prices Jump on Delay to New Russian Pipeline

    This article from Bloomberg may be of interest to subscribers. Here is a section:

    The German regulator said Tuesday it suspended the certification procedure for the Nord Stream 2 project because the operator of the pipeline decided to set up a German subsidiary, which will be the owner of the section of the pipeline in the country. The permitting process has been halted until assets and people are transferred to the new unit.

    Benchmark European gas prices surged as much as 12% after the announcement as it adds to the uncertainty over how much gas the energy-hungry market will have this winter. Many in Europe expect Russia to significantly increase supplies only when the pipeline is approved.

    “This is potentially a good thing for the project for the long term, as the changes could mean it would be eventually approved,” said Ole Hansen, head of commodity strategy at Saxo Bank A/S. “But it’s not helping the short-term outlook for the market where a bad, cold winter could leave us short.”

    This section continues in the Subscriber's Area.

    4 Million Tons a Day Show Why China and India Won't Quit Coal

    This article from Bloomberg may be of interest to subscribers. Here is a section:

    Meanwhile, mines across China and India have been ramping up production in recent weeks to ease a supply crunch that’s caused widespread power shortages and curbs on industrial activity. China’s miners have beaten a government target to raise output to 12 million tons a day, while India’s daily production is close to 2 million tons.

    “The power cuts since mid-to-late September show that we are still not prepared enough,” Yang Weimin, a member of the economic committee of the Chinese People’s Political Consultative Conference and a government advisor, told a conference in Beijing on Saturday. Additional funding is needed to ensure coal plants can be used to complement a rising share of renewables, he said.

    Coal’s share in global electricity generation fell in 2020 to 34%, the smallest in more than two decades, though it remains the single largest power source, according to BloombergNEF.

    In China, it accounted for about 62% of electricity generation last year. President Xi Jinping has set a target for the nation to peak its consumption of the fuel in 2025, and aims to have non-fossil fuel energy sources exceed 80% of its total mix by 2060.

    For India, coal is even more important, representing 72% of electricity generation. The fuel will still make up 21% of India’s electricity mix by 2050, BNEF analysts including Atin Jain said in a note last month.

    This section continues in the Subscriber's Area.

    Inflation in U.S. Builds With Biggest Gain in Prices Since 1990

    This article for Bloomberg may be of interest to subscribers. Here is a section:

    “We haven’t seen, I’ll say, any more resistance to our price increases than we’ve seen historically.” -- McDonald’s Corp. CFO Kevin Ozan, Oct. 27 earnings call

    “Looking at Q4, we expect our selling price actions to continue to gain traction, as we work to mitigate the raw material and logistics inflationary pressures we have experienced throughout the year.” -- 3M Co. CFO Monish Patolawala, Oct. 26 earnings call

    “We feel very comfortable that any inflation that is affecting our margin today, we have the ability to offset it.” - Chipotle Mexican Grill Inc. CFO John Hartung, Oct. 21 earnings

    “We have now announced pricing in nine out of ten categories, so very broad based.” -- Procter & Gamble Co. CFO Andre Schulten, Oct. 19 earnings call

    While most CPI categories rose, the cost of airfares declined for a fourth month and apparel prices were unchanged. Wages have strengthened markedly in recent months -- with some measures rising by the most on record -- but higher consumer prices are eroding Americans’ buying power. 

    Inflation-adjusted average hourly earnings fell 1.2% in October from a year earlier, separate data showed Wednesday.

    This section continues in the Subscriber's Area.