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Winter is coming: European buyers shifting from natural gas to crude oil

Record temperatures. An unusually hot summer and prolonged drought conditions. Even the mighty Rhine runs dry. For Europe, these strange and harsh phenomena…

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Record temperatures. An unusually hot summer and prolonged drought conditions. Even the mighty Rhine runs dry. For Europe, these strange and harsh phenomena seem to be troubling omens of the difficult road that lies ahead.

With winter approaching, and household and government budgets in the doldrums, residential and industrial customers will need to brace for impact in Europe’s messy energy market.

But first, a quick look at inflation.

The latest data shows that consumer inflation has been on a rampage in Europe. This week, the UK saw consumer prices surging into the double digits, rising 10.1% in July, compared to the 9.4% recorded in June.

The Bank of England estimates that the situation is only likely to worsen as energy price caps expire in October, which may lead to inflation rising to as high as 13%.

The Eurozone, which delayed its policy normalization compared to its peers, registered a CPI of 8.9%, the highest level since the Euro was created way back in 1999.

Europe’s statistics body found that energy prices had a crippling effect on households, contributing 4.02%, while food, alcohol and tobacco accounted for 2.08%.

Even non-food, non-energy, core inflation was north of 5% YoY.

While it is true that monetary tightening can take time to filter down to consumer prices, Europe seems to be tussling with many of the same supply side issues, as it was earlier.

Power shortages in China are also contributing to global inflation. According to Amrita Sen, founder of Energy Aspects, this “absolutely adds to those inflationary pressures around the world.”

With China’s economy creaking under the weight of continuing lockdowns and slowing global growth, bottlenecks are likely to persist.

Natural gas prices

Natural gas markets have surged mercilessly across the world, and are now trading at all-time highs. At the time of writing, the Dutch natural gas hub, which is the benchmark for all of Europe, increased 199.6% YTD and an astonishing 431.1% YoY.

Although the European natural gas market has been plagued with difficulties over an extended period, the fear that Russia may scale down or even fully cut supplies has fueled the meteoric rise in prices.

In fact, on an average basis, the Dutch TTF was trading an incredible 10 times higher for this time of year.

Europe imports 41% of its natural gas from Russia, with some countries being nearly solely dependent on these flows.

Rising prices have most notably wreaked havoc in Germany, which is estimated to have purchased EUR 9.1 billion in energy deliveries during the first two months of the Ukraine war.

In addition, Berlin likely has less than three months of natural gas stocks in a situation where international flows are entirely cut off.   

The drying up of the Rhine and the ongoing drought conditions have slowed inland water transport of commodities, including coal, which has forced electricity prices higher.

In Germany, year-ahead electricity derivatives hit record highs and were trading 500% higher on a Y-o-Y basis, largely due to fears that supply could evaporate at a moment’s notice.

Phil Carr of The Gold and Silver Club notes that given the severity of the heat wave, electricity demand to power air conditioning has skyrocketed throughout Europe and the UK.

In part due to such tightness in the energy sector, Germany, a nation perhaps most well-known for its cultural aversion to inflation, has been engulfed by 5 consecutive months of 7%+ consumer price rises.

According to Sen, the situation on the ground is so dire that the authorities have been forced to reduce sales tax on natural gas to 7% in a bid “to ease inflationary pressures on consumers.”

Source: ICE, Investing.com

From the above graph, the effect of European tensions with Russia compared to the price increase in the US is evident.

Oil movements

In recent months, oil prices were elevated due to geopolitical uncertainties and tightness in the market for refined products. US cities faced gasoline prices at well over $5. Even though prices have come off their highs earlier in the year, the outlook for short-term demand is still clouded.

Both Brent and WTI were trending lower since Monday before recovering mid-week, but are still down roughly 2.0% in the past 5-days at the time of writing.

In the first half of the week, oil prices trended lower due to expectations of progress in the Iran deal, disappointing Chinese industrial data, and increased recessionary fears. However, later in the week, prices broke out as US industrial data came in above expectations, and China’s call for greater reforms was supported by a cut in interest rates.   

In addition, concerns that a catastrophic nuclear incident may have occurred amid fighting in Ukraine pushed crude prices higher.

Despite the recovery in oil prices this week, the market is far less tight than it was even a few weeks ago.

However, this may prove to be temporary, given that the overall decline in prices is primarily a seasonal effect, driven by lower industrial production in Europe, the start of the outbound tourist season, and most importantly, the onset of the refinery maintenance period.

Throughout Europe, industrial producers have historically calibrated operations to demand lesser fuel stocks during this time easing pressures.

Crude oil forecast

With the onset of the colder months, demand for heating will rise in Europe.

Sen believes that the Iran deal is the key driver of price action in either direction.

If the US does accept Iran’s nuclear agreement, western sanctions will ease, and over 1 million barrels a day of Iranian oil would be slated to enter the market.

However, Sen stressed that she expects the crude oil market to “tighten rapidly”, and that “without Iran, we are absolutely going back above $100 come winter.”

Another key driver for the bull case is the tendency of European customers to switch from gas to oil  if natural gas prices are too high. Data show that industries have already begun to transition to oil and coal to meet their energy needs.

Moreover, the US’s Strategic Petroleum Reserve injections are expected to cease in October squeezing supply.

In October, China will also host the national party meeting where covid lockdowns are expected to be eased significantly. If they are, industrial activity will improve and crude prices will see a new channel of upward pressure.

Amid all these factors, oil prices in Europe could be subject to the perfect storm when an expected 2.2 million barrels per day is shelved from the market as the Russia ban becomes fully operational in December.

Although recession would reduce oil demand, demand appears to still be robust in the US. Despite the end of the vacation-driving season, crude stocks plummeted by over 7 million barrels in mid-August. ING economists note that this decline was largely due to “a substantial increase in crude oil exports over the week” which rose to a record 5MMbbls/d, showing high appetite both domestically and in international markets.

Given these overlapping factors, Sen expects that in the absence of an Iran deal in the near term, a scenario echoed by Goldman Sachs, oil prices could rebound firmly and reach as high as $120 by the end of the year.

In terms of substitution away from natural gas, Christopher Ward of Britannia Global Markets wrote that “the scramble for gas alternatives is keeping coal buoyant.”

Diverging expectations on oil demand

According to Elizabeth Low of Bloomberg News, “the reports are indeed quite mixed”, with OPEC echoing a bearish view of short-term oil demand, while the IEA projects prices to rise due to rotation away from natural gas and towards oil and oil products.

OPEC’s main case for slowing demand rests on the impact of the Ukraine war, high inflation and policy efforts to contain the pandemic.

The IEA estimates orders for an additional 380,000 barrels per day in 2022. OPEC, however, cut its forecast of global demand by 260,000 barrels per day on expectations of a glut in global supply.

Sen argues, “I really struggle to call it a glut”, since, in many regions, inventories lie at 10-year lows.

Market sentiment seems to suggest that there is a high likelihood that OPEC+ would defend crude prices from sliding any further by cutting production, if needed.

Key downside risks

The key threat to the rising oil prices is if the Iran deal reaches fruition, which appears highly unlikely in the near future.

Secondly, with reports that rivers are being rejuvenated, commodity transport through inland waterways may improve.

Thirdly, oil demand could sink again if China fails to meaningfully exit covid lockdowns this year.

Another highly unlikely development that could result in a deep pullback in oil prices would be an unexpected resolution to the Russia-Ukraine conflict.

The post Winter is coming: European buyers shifting from natural gas to crude oil appeared first on Invezz.

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International

United Airlines adds new flights to faraway destinations

The airline said that it has been working hard to "find hidden gem destinations."

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Since countries started opening up after the pandemic in 2021 and 2022, airlines have been seeing demand soar not just for major global cities and popular routes but also for farther-away destinations.

Numerous reports, including a recent TripAdvisor survey of trending destinations, showed that there has been a rise in U.S. traveler interest in Asian countries such as Japan, South Korea and Vietnam as well as growing tourism traction in off-the-beaten-path European countries such as Slovenia, Estonia and Montenegro.

Related: 'No more flying for you': Travel agency sounds alarm over risk of 'carbon passports'

As a result, airlines have been looking at their networks to include more faraway destinations as well as smaller cities that are growing increasingly popular with tourists and may not be served by their competitors.

The Philippines has been popular among tourists in recent years.

Shutterstock

United brings back more routes, says it is committed to 'finding hidden gems'

This week, United Airlines  (UAL)  announced that it will be launching a new route from Newark Liberty International Airport (EWR) to Morocco's Marrakesh. While it is only the country's fourth-largest city, Marrakesh is a particularly popular place for tourists to seek out the sights and experiences that many associate with the country — colorful souks, gardens with ornate architecture and mosques from the Moorish period.

More Travel:

"We have consistently been ahead of the curve in finding hidden gem destinations for our customers to explore and remain committed to providing the most unique slate of travel options for their adventures abroad," United's SVP of Global Network Planning Patrick Quayle, said in a press statement.

The new route will launch on Oct. 24 and take place three times a week on a Boeing 767-300ER  (BA)  plane that is equipped with 46 Polaris business class and 22 Premium Plus seats. The plane choice was a way to reach a luxury customer customer looking to start their holiday in Marrakesh in the plane.

Along with the new Morocco route, United is also launching a flight between Houston (IAH) and Colombia's Medellín on Oct. 27 as well as a route between Tokyo and Cebu in the Philippines on July 31 — the latter is known as a "fifth freedom" flight in which the airline flies to the larger hub from the mainland U.S. and then goes on to smaller Asian city popular with tourists after some travelers get off (and others get on) in Tokyo.

United's network expansion includes new 'fifth freedom' flight

In the fall of 2023, United became the first U.S. airline to fly to the Philippines with a new Manila-San Francisco flight. It has expanded its service to Asia from different U.S. cities earlier last year. Cebu has been on its radar amid growing tourist interest in the region known for marine parks, rainforests and Spanish-style architecture.

With the summer coming up, United also announced that it plans to run its current flights to Hong Kong, Seoul, and Portugal's Porto more frequently at different points of the week and reach four weekly flights between Los Angeles and Shanghai by August 29.

"This is your normal, exciting network planning team back in action," Quayle told travel website The Points Guy of the airline's plans for the new routes.

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International

Walmart launches clever answer to Target’s new membership program

The retail superstore is adding a new feature to its Walmart+ plan — and customers will be happy.

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It's just been a few days since Target  (TGT)  launched its new Target Circle 360 paid membership plan. 

The plan offers free and fast shipping on many products to customers, initially for $49 a year and then $99 after the initial promotional signup period. It promises to be a success, since many Target customers are loyal to the brand and will go out of their way to shop at one instead of at its two larger peers, Walmart and Amazon.

Related: Walmart makes a major price cut that will delight customers

And stop us if this sounds familiar: Target will rely on its more than 2,000 stores to act as fulfillment hubs. 

This model is a proven winner; Walmart also uses its more than 4,600 stores as fulfillment and shipping locations to get orders to customers as soon as possible.

Sometimes, this means shipping goods from the nearest warehouse. But if a desired product is in-store and closer to a customer, it reduces miles on the road and delivery time. It's a kind of logistical magic that makes any efficiency lover's (or retail nerd's) heart go pitter patter. 

Walmart rolls out answer to Target's new membership tier

Walmart has certainly had more time than Target to develop and work out the kinks in Walmart+. It first launched the paid membership in 2020 during the height of the pandemic, when many shoppers sheltered at home but still required many staples they might ordinarily pick up at a Walmart, like cleaning supplies, personal-care products, pantry goods and, of course, toilet paper. 

It also undercut Amazon  (AMZN)  Prime, which costs customers $139 a year for free and fast shipping (plus several other benefits including access to its streaming service, Amazon Prime Video). 

Walmart+ costs $98 a year, which also gets you free and speedy delivery, plus access to a Paramount+ streaming subscription, fuel savings, and more. 

An employee at a Merida, Mexico, Walmart. (Photo by Jeffrey Greenberg/Universal Images Group via Getty Images)

Jeff Greenberg/Getty Images

If that's not enough to tempt you, however, Walmart+ just added a new benefit to its membership program, ostensibly to compete directly with something Target now has: ultrafast delivery. 

Target Circle 360 particularly attracts customers with free same-day delivery for select orders over $35 and as little as one-hour delivery on select items. Target executes this through its Shipt subsidiary.

We've seen this lightning-fast delivery speed only in snippets from Amazon, the king of delivery efficiency. Who better to take on Target, though, than Walmart, which is using a similar store-as-fulfillment-center model? 

"Walmart is stepping up to save our customers even more time with our latest delivery offering: Express On-Demand Early Morning Delivery," Walmart said in a statement, just a day after Target Circle 360 launched. "Starting at 6 a.m., earlier than ever before, customers can enjoy the convenience of On-Demand delivery."

Walmart  (WMT)  clearly sees consumers' desire for near-instant delivery, which obviously saves time and trips to the store. Rather than waiting a day for your order to show up, it might be on your doorstep when you wake up. 

Consumers also tend to spend more money when they shop online, and they remain stickier as paying annual members. So, to a growing number of retail giants, almost instant gratification like this seems like something worth striving for.

Related: Veteran fund manager picks favorite stocks for 2024

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Government

President Biden Delivers The “Darkest, Most Un-American Speech Given By A President”

President Biden Delivers The "Darkest, Most Un-American Speech Given By A President"

Having successfully raged, ranted, lied, and yelled through…

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President Biden Delivers The "Darkest, Most Un-American Speech Given By A President"

Having successfully raged, ranted, lied, and yelled through the State of The Union, President Biden can go back to his crypt now.

Whatever 'they' gave Biden, every American man, woman, and the other should be allowed to take it - though it seems the cocktail brings out 'dark Brandon'?

Tl;dw: Biden's Speech tonight ...

  • Fund Ukraine.

  • Trump is threat to democracy and America itself.

  • Abortion is good.

  • American Economy is stronger than ever.

  • Inflation wasn't Biden's fault.

  • Illegals are Americans too.

  • Republicans are responsible for the border crisis.

  • Trump is bad.

  • Biden stands with trans-children.

  • J6 was the worst insurrection since the Civil War.

(h/t @TCDMS99)

Tucker Carlson's response sums it all up perfectly:

"that was possibly the darkest, most un-American speech given by an American president. It wasn't a speech, it was a rant..."

Carlson continued: "The true measure of a nation's greatness lies within its capacity to control borders, yet Bid refuses to do it."

"In a fair election, Joe Biden cannot win"

And concluded:

“There was not a meaningful word for the entire duration about the things that actually matter to people who live here.”

Victor Davis Hanson added some excellent color, but this was probably the best line on Biden:

"he doesn't care... he lives in an alternative reality."

*  *  *

Watch SOTU Live here...

*   *   *

Mises' Connor O'Keeffe, warns: "Be on the Lookout for These Lies in Biden's State of the Union Address." 

On Thursday evening, President Joe Biden is set to give his third State of the Union address. The political press has been buzzing with speculation over what the president will say. That speculation, however, is focused more on how Biden will perform, and which issues he will prioritize. Much of the speech is expected to be familiar.

The story Biden will tell about what he has done as president and where the country finds itself as a result will be the same dishonest story he's been telling since at least the summer.

He'll cite government statistics to say the economy is growing, unemployment is low, and inflation is down.

Something that has been frustrating Biden, his team, and his allies in the media is that the American people do not feel as economically well off as the official data says they are. Despite what the White House and establishment-friendly journalists say, the problem lies with the data, not the American people's ability to perceive their own well-being.

As I wrote back in January, the reason for the discrepancy is the lack of distinction made between private economic activity and government spending in the most frequently cited economic indicators. There is an important difference between the two:

  • Government, unlike any other entity in the economy, can simply take money and resources from others to spend on things and hire people. Whether or not the spending brings people value is irrelevant

  • It's the private sector that's responsible for producing goods and services that actually meet people's needs and wants. So, the private components of the economy have the most significant effect on people's economic well-being.

Recently, government spending and hiring has accounted for a larger than normal share of both economic activity and employment. This means the government is propping up these traditional measures, making the economy appear better than it actually is. Also, many of the jobs Biden and his allies take credit for creating will quickly go away once it becomes clear that consumers don't actually want whatever the government encouraged these companies to produce.

On top of all that, the administration is dealing with the consequences of their chosen inflation rhetoric.

Since its peak in the summer of 2022, the president's team has talked about inflation "coming back down," which can easily give the impression that it's prices that will eventually come back down.

But that's not what that phrase means. It would be more honest to say that price increases are slowing down.

Americans are finally waking up to the fact that the cost of living will not return to prepandemic levels, and they're not happy about it.

The president has made some clumsy attempts at damage control, such as a Super Bowl Sunday video attacking food companies for "shrinkflation"—selling smaller portions at the same price instead of simply raising prices.

In his speech Thursday, Biden is expected to play up his desire to crack down on the "corporate greed" he's blaming for high prices.

In the name of "bringing down costs for Americans," the administration wants to implement targeted price ceilings - something anyone who has taken even a single economics class could tell you does more harm than good. Biden would never place the blame for the dramatic price increases we've experienced during his term where it actually belongs—on all the government spending that he and President Donald Trump oversaw during the pandemic, funded by the creation of $6 trillion out of thin air - because that kind of spending is precisely what he hopes to kick back up in a second term.

If reelected, the president wants to "revive" parts of his so-called Build Back Better agenda, which he tried and failed to pass in his first year. That would bring a significant expansion of domestic spending. And Biden remains committed to the idea that Americans must be forced to continue funding the war in Ukraine. That's another topic Biden is expected to highlight in the State of the Union, likely accompanied by the lie that Ukraine spending is good for the American economy. It isn't.

It's not possible to predict all the ways President Biden will exaggerate, mislead, and outright lie in his speech on Thursday. But we can be sure of two things. The "state of the Union" is not as strong as Biden will say it is. And his policy ambitions risk making it much worse.

*  *  *

The American people will be tuning in on their smartphones, laptops, and televisions on Thursday evening to see if 'sloppy joe' 81-year-old President Joe Biden can coherently put together more than two sentences (even with a teleprompter) as he gives his third State of the Union in front of a divided Congress. 

President Biden will speak on various topics to convince voters why he shouldn't be sent to a retirement home.

According to CNN sources, here are some of the topics Biden will discuss tonight:

  • Economic issues: Biden and his team have been drafting a speech heavy on economic populism, aides said, with calls for higher taxes on corporations and the wealthy – an attempt to draw a sharp contrast with Republicans and their likely presidential nominee, Donald Trump.

  • Health care expenses: Biden will also push for lowering health care costs and discuss his efforts to go after drug manufacturers to lower the cost of prescription medications — all issues his advisers believe can help buoy what have been sagging economic approval ratings.

  • Israel's war with Hamas: Also looming large over Biden's primetime address is the ongoing Israel-Hamas war, which has consumed much of the president's time and attention over the past few months. The president's top national security advisers have been working around the clock to try to finalize a ceasefire-hostages release deal by Ramadan, the Muslim holy month that begins next week.

  • An argument for reelection: Aides view Thursday's speech as a critical opportunity for the president to tout his accomplishments in office and lay out his plans for another four years in the nation's top job. Even though viewership has declined over the years, the yearly speech reliably draws tens of millions of households.

Sources provided more color on Biden's SOTU address: 

The speech is expected to be heavy on economic populism. The president will talk about raising taxes on corporations and the wealthy. He'll highlight efforts to cut costs for the American people, including pushing Congress to help make prescription drugs more affordable.

Biden will talk about the need to preserve democracy and freedom, a cornerstone of his re-election bid. That includes protecting and bolstering reproductive rights, an issue Democrats believe will energize voters in November. Biden is also expected to promote his unity agenda, a key feature of each of his addresses to Congress while in office.

Biden is also expected to give remarks on border security while the invasion of illegals has become one of the most heated topics among American voters. A majority of voters are frustrated with radical progressives in the White House facilitating the illegal migrant invasion. 

It is probable that the president will attribute the failure of the Senate border bill to the Republicans, a claim many voters view as unfounded. This is because the White House has the option to issue an executive order to restore border security, yet opts not to do so

Maybe this is why? 

While Biden addresses the nation, the Biden administration will be armed with a social media team to pump propaganda to at least 100 million Americans. 

"The White House hosted about 70 creators, digital publishers, and influencers across three separate events" on Wednesday and Thursday, a White House official told CNN. 

Not a very capable social media team... 

The administration's move to ramp up social media operations comes as users on X are mostly free from government censorship with Elon Musk at the helm. This infuriates Democrats, who can no longer censor their political enemies on X. 

Meanwhile, Democratic lawmakers tell Axios that the president's SOTU performance will be critical as he tries to dispel voter concerns about his elderly age. The address reached as many as 27 million people in 2023. 

"We are all nervous," said one House Democrat, citing concerns about the president's "ability to speak without blowing things."

The SOTU address comes as Biden's polling data is in the dumps

BetOnline has created several money-making opportunities for gamblers tonight, such as betting on what word Biden mentions the most. 

As well as...

We will update you when Tucker Carlson's live feed of SOTU is published. 

Tyler Durden Fri, 03/08/2024 - 07:44

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