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

    Summers Says Fed 'Let Us Down Quite Badly' and Still Unrealistic

    This article from Bloomberg may be of interest to subscribers. Here it is in full:

    Former Treasury Secretary Lawrence Summers issued one of his harshest criticisms yet of the Federal Reserve’s slowness in moving to raise interest rates, and warned that policy makers are still presenting forecasts that are unrealistic.

    “In 2021, our central bank let us down quite badly,” hurting policy makers’ credibility, Summers said on Bloomberg Television’s “Wall Street Week.” “It made mistakes in the core functioning of a central bank,” including in its failure to lean in against fiscal stimulus last year, he said.

    Among the errors has been a “repeated poor forecasting record -- and I have to say that it’s not something that’s been fully fixed,” Summers said. The June median Fed official predictions showed inflation coming back toward the 2% target but unemployment only reaching a high of 4.1% by 2024 -- a “highly implausible” result, he said.

    “Frankly I think in 2021 our central bank lost its way. It was talking about the environment, talking about social justice in a range of things,” Summers, a Harvard University professor and paid contributor to Bloomberg TV, said. “It was confidently dismissing concerns about inflation as transitory.”

    Turning to Japan, which has seen its currency tumble to the weakest since 1998 as the Bank of Japan declines to join its peers in tightening policy, Summers said it’s likely to be a challenge to exit the current zero-yield targeting regime.

    Dollar’s Impact
    “Sooner or later they’re going to leave the yield curve control strategy and I’m not entirely sure what’s going to happen when they do,” Summers said. “In the meantime, the pressures are likely to build,” with the potential for “an even weaker yen,” he said.

    While some emerging markets are also suffering from a strengthening dollar, Summers said that he didn’t see a “systemic” crisis along the lines of 1998. Still, countries with “particularly unsound policies” including Turkey and Argentina are a concern, he said.

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    Germany's Habeck Urges Canada to Help Thwart Putin on Gas

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

    Germany’s vice chancellor made a public plea to the Canadian government to release a turbine that’s caught up in sanctions against Russia and critical for gas flows to Europe. 

    Economy Minister Robert Habeck told Bloomberg that the turbine for the Nord Stream 1 pipeline needs to be returned before maintenance work begins on Monday. Releasing the component would remove an excuse for Russian President Vladimir Putin to keep the conduit closed.

    “I’ll be the first one who will fight for a further strong EU sanction package, but strong sanctions means it must hurt and harm Russia and Putin more than it does our economy,” Habeck said in a phone interview late Wednesday. “Therefore, I ask for understanding that we have to take this turbine excuse away from Putin.”

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    Ruble Halts Longest Series of Losses Since April: Inside Russia

    This note from Bloomberg may be of interest. 

    Russia’s currency is set to end four days of losses against the greenback as demand for foreign currency declined in Moscow. The country’s main stock index drops for a second day.

    Ruble gains 0.1% to 63.2800/$; adds 0.9% versus euro to 64.1850

    USD/RUB rate might correct to 55-60 range in the near future, George Vaschenko, head of Russian trading at Freedom Finance in Moscow, writes in a note

    “Ruble weakening was not accompanied by significant trade volumes; the weakening of demand will lead to a decline in the exchange rate”

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    Boris Johnson fights on but hit by new wave of resignations

    This article from the BBC may be of interest. Here is a section: 

    New chancellor Nadhim Zahawi has urged unity after his predecessor, the health secretary, and several junior ministers walked out.

    But the prime minister has been hit by six further resignations, taking the total to 16 in the past day.

    It comes as he prepares for PMQs later and a grilling by senior MPs.

    Mr Johnson's premiership has been plunged into crisis following the dramatic resignations of Chancellor Rishi Sunak and Health Secretary Sajid Javid.

    They quit within minutes of each other on Tuesday following a row over Mr Johnson's decision to appoint Chris Pincher deputy chief whip earlier this year.

    Their departures triggered a wave of resignations from more junior roles that has continued on Wednesday.

    In six further departures ahead of PMQs, education ministers Will Quince and Robin Walker, Justice Minister Victoria Atkins, Treasury minister John Glen, and ministerial aides Laura Trott and Felicity Buchan have all walked out.

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    EU parliament backs labelling gas and nuclear investments as green

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

    The new rules will add gas and nuclear power plants to the EU "taxonomy" rulebook from 2023, enabling investors to label and market investments in them as green.

    Out of 639 lawmakers present, 328 opposed a motion that sought to block the EU gas and nuclear proposals.

    The European Commission welcomed the result. It proposed the rules in February after more than a year of delay and intense lobbying from governments and industries.

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    Euro Tumbles to 20-Year Low, Putting Parity With Dollar in Sight

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

    “It is hard to find much positive to say about the EUR,” said Dominic Bunning, the head of European FX Research at HSBC. “With ECB sticking to its line that we will only see a 25bp hike in July – at a time when others are hiking much faster – and waiting for September to deliver a faster tightening, there is also little support coming from higher yields.” 

    Money-market traders are betting ECB will deliver around 140 basis points this year, down from more than 190 basis points almost three weeks ago. The repricing gathered pace after a string of weak economic data last week, with traders trimming bets again on Tuesday after French services PMI was revised lower. 

    Investors have also been more cautious on the euro due to the risk of so-called fragmentation, when economically weaker nations see unwarranted spikes in borrowing costs as financial conditions tighten. The ECB is expected to deliver further details of a new tool to backstop more vulnerable countries’ debt at their policy meeting later this month.

    The losses Tuesday were compounded by poor liquidity and selling in euro-Swiss franc, according to three Europe-based traders. The euro fell as much as 0.9% against the Swiss franc to 0.99251, the lowest level since 2015. 

    “The FX market is not back up to full liquidity given the US holiday,” said Mizuho’s Jones. “Any given size of trade is likely to have a greater impact on market movement.”

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    Iran Slashes Cost of Its Oil to Compete With Russia in China

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

    Russian exports to China surged to a record in May, with the OPEC+ producer overtaking its cartel ally Saudi Arabia as the top supplier to the world’s biggest importer. While Iran has cut its oil prices to remain competitive in the Chinese market, it’s still maintaining robust flows, likely in part due to rising demand as China eases strict virus restrictions that had crushed consumption.

    “The only competition between Iranian and Russian barrels may end up being in China, which would work entirely to Beijing’s advantage,” said Vandana Hari, founder of Vanda Insights in Singapore. “This is also likely to make the Gulf producers uneasy, seeing their prized markets taken over by heavily discounted crude.”

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    Oil at $150 May Be Closer Than You Think

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

    The global oil market is so tight on the cusp of the second half that a single, powerful jolt could unleash the furies and power prices toward $150/bbl within a few swift, brutal days. This is a high-risk environment for crude, as well as for global growth, inflation, and by extension for assets from equities to bonds.

    Brent eased in June as the Fed stood up, recession angst built, and one or two faint signs of demand destruction crept into the mix. But the benchmark remains well up in 2Q, and wherever you look, market signals -- both esoteric and mainstream -- testify to extraordinarily tight conditions. Also of note, US stockpiles at the Cushing hub just hit the lowest since 2014, and OPEC+ (which meets today to assess policy) has scant spare capacity.

    To say that a spike toward $150/bbl is entirely possible is not to say that the milestone will come to pass. But these are strange and rare times in energy markets that are being addled by war, sanctions, monetary-policy ructions, pandemic recovery, and the legacy impact of scant industry investment. Add to that roster of drivers, elevated weather risk, as well as scope for disruptions beyond those seen this week in Libya and Ecuador.

    To get a sense of how much tension the market has, look at what sober-minded folk are saying. Shell CEO Ben van Beurden swung through Singapore this week and said the world is set for a “turbulent period” as spare energy production capacity is running “very low”. Significantly, he talked of a “fear factor” as a result of an “ever-tighter market”. Buckle up for the coming quarter.

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    Permian Basin Facing Pollution Rules That Could Curb Drilling

    This article from Bloomberg may be of interest to subscribers. Here it is in full:

    The Biden administration is considering triggering tougher anti-smog requirements that could curb drilling across parts of the Permian Basin, the world’s biggest oil field that straddles Texas and New Mexico.

    The Environmental Protection Agency is weighing labeling parts of the Permian Basin as violating federal air quality standards for ozone -- a designation that would force state regulators to develop plans for cracking down on that smog-forming pollution. The move, outlined in a regulatory notice, could spur new permitting requirements and scrutiny of drilling operations.

    Ozone levels in the basin have surpassed a federal standard “for the last several years -- really since the fracking boom took off in the Permian,” said Jeremy Nichols, climate and energy program director for WildEarth Guardians. The conservation group formally petitioned EPA for the so-called non-attainment designation in March 2021 and, roughly six months later, warned the agency it intended to sue to force action. The designation “basically says you’ve got to clean up this mess or the consequences are going to get even more severe as far as restricting your ability to permit more pollution and more development,” he said. 

    While Texas does not have monitors taking ozone readings on its side of the Permian, monitors just over the border in the Eddy and Lea counties of New Mexico have recorded average ground-level ozone levels exceeding the 2015 standard of 70 parts per billion several years running. Even at low levels, ozone can worsen asthma, emphysema and other respiratory illnesses.

    If the region is deemed in violation, state regulators would have three years to develop plans for lowering ozone levels, including by preventing new industrial facilities from worsening air quality and ensuring existing sites deploy technology to keep pollution at bay.

    The resulting uncertainty could constrain energy development in the region, said Todd Staples, president of the Texas Oil and Gas Association. “Creating uncertainty on permitting and inserting unnecessary regulatory barriers will only negatively impact the production necessary to meet the needs of consumers."

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