Clean Energy Stocks Are Shining

In the latest edition of the Numbers Report, we will take a look at some of the most interesting figures put out this week in the energy and metals sectors. Each week we’ll dig into some data and provide a bit of explanation on what drives the numbers.

Let’s take a look.

1. US Gasoline Falls Below $4/Gallon Again

- The average retail price of gasoline in the US fell below $4 per gallon on Thursday for the first time since March, losing more than $1/USG from its June peak of $5.02/USG.
- With crude oil prices dropping below $100 per barrel on the back of recessionary fears, the pressure on gasoline has eased as summer driving season is gradually nearing its end.
- According to EIA data, gasoline demand in the country fell by more than 6% year-on-year in July, with the four-week average of 8.59 million b/d being even weaker than COVID-stricken 2020 levels.
- Flat month-on-month inflation recorded in July has also shifted the sentiment to the upside, though gasoline spending as share of total expenses still trends around the 10% mark.

2. Even When OPEC+ Increases Output, It Is Not Enough

- Despite OPEC+ recording a 500,000 b/d month-on-month supply increase in July, bringing the oil group’s total to the highest total level since March at 42.58 million b/d, it is still producing well below its stated goals.
- Short of the 648,000 b/d monthly target, OPEC+ underperformance has risen to 2.8 million b/d, the equivalent of Kuwait’s average production, pushing the compliance rate to a record high of 223%.
- OPEC powerhouses Saudi Arabia and the UAE led the production increases, with the former boosting output by 220,000 b/d, whilst amongst non-OPEC participants it was only Russia and Kazakhstan that saw marginally rising output rates.
- The two key African members, Nigeria and Angola, remain the main underperformers of OPEC+, with their actual production being 570,000 b/d and 330,000 b/d below their July targets, respectively.

3. Copper Going Down Is the New Market Buzzword

Copper prices have been on the rebound recently, rising to their highest in six weeks as the three-month LMG contract moved to $8,160 per metric ton on news of flat US inflation.
Despite the uptick, market speculators have been building up short positions in copper amidst widespread fears of a recession-driven drop in copper demand.
Whilst some speculators were using exchange copper contracts – COMEX data indicates that copper was net short 17,715 contracts past week – others opted for put options.
It is the 7,000/mt strike price that wields the largest LME open interest, though positions below the marginal costs for copper (around 6,000/mt) have also seen a build-up recently.

4. Alberta to Become Renewables Powerhouse

- According to Rystad Energy, the Canadian province of Alberta, home to the country’s plentiful oil sands, is set to undergo a surge in installed renewables capacity.
- With Canada’s current generation dominated by large hydropower projects, its renewables capacity is expected to more than double to 45 GW capacity by 2025, driven by onshore wind and solar.
- Alberta will account for almost half of the country’s renewables capacity by 2025, multiplying by a factor of seven from the 3 GW currently to the 21 GW by mid-decade.
- Whilst long-fixed teed-in-tariffs in regions like Ontario have led to renewables growth there, most of them expired in 2016 whilst Alberta’s power purchase agreements allow private operators to sell their producer electricity directly into the grid at a set price.

5. Clean Energy Soars On the Back of Biden’s Climate Bill

- Ever since Senator Joe Manchin announced his support for the $374 billion climate bill, clean energy exchange-traded funds have been on the upswing, with the three largest rising by 15-17% over the past two weeks.
- Although the ETFs saw a combined $320 million in net inflows over the last two weeks, investors have withdrawn more than $420 million so far this year so there is still a long way to go.
- Renewable energy companies have seen even more impressive growth, with solar producer First Solar’s shares (NASDAQ:FSLR) soaring 70% month-on-month, likewise with battery storage firm Fluence (NASDAQ:FLNC).
- Wind and solar accounted for only 12% of US electricity generation as of last year – the Biden Administration’s goal of decarbonizing the country’s power sector by 2035 will require much more than the $215 billion investment seen in 2021.

6. High Coal Prices Might be Around for Years

- EU sanctions on Russian coal have come into effect this week, tightening coal availability across the Atlantic Basin and potentially keeping coal prices elevated for years to come.
- All major coal benchmarks are currently trading above $300 per metric ton, however, with LNG supply remaining tight, future expectations remain almost as high as spot trading levels right now.
- Asia’s benchmark ICE Newcastle December 2026 contract stands at $233/mt whilst the same month’s European API contract is at $208/mt, meaning the market is expecting only marginal downwards movement over the short-to-mid-term.
- With there being no end in sight to Europe’s ballooning gas prices, coal will remain to be the more cost-efficient option of the two, further buoyed by Germany calling for a curb in gas use for power generation.

7. Cobalt Remains in Deep Trouble

- Cobalt, widely assumed to be one of the key metals of the future, has seen its prices plummeting since April, however the intermediate feedstock of cobalt hydroxide is under even greater pressure.
- According to Platts, 30% Co cobalt hydroxide fell more than 60% since the all-time high of 34.10/lb recorded on 25 April, currently trading at 13/lb.
- Weak Chinese demand coming from the 3C – computers, communications, and consumer electronics – has been the main cause of faltering cobalt prices as China accounts for 74% of global refining capacity.
- Cobalt might be temporarily lifted by China’s NFSRA buying some volumes for national stockpiling, with there being talk of Beijing taking in up to 2,600 metric tons of the metal.

That’s it for this week’s Numbers Report. Thanks for reading, and we’ll see you next week.