Are Power Companies Playing Texas Hold’em? | Sidnaz Blog

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It isn’t even close to the peak of Texas’s sizzling summer season and already the state’s power grid has given out two warnings of tight conditions after a higher-than-usual volume of plants went offline. Wear and tear from the February winter storm is one possible explanation; market manipulation is another. They aren’t mutually exclusive.

Warm weather and low wind output played a role, but what was surprising about the alerts—one in April, the other in June—was the number of power plants that were offline at the same time. On June 14, the Electricity Reliability Council of Texas, the state’s grid operator, said some 11 gigawatts of generation (roughly 15% of that day’s peak load forecast and enough to power 2.2 million homes in the summer) was on forced outage for repairs. In April, Ercot had said roughly 33 GW of generation was out of service for maintenance. Of course, that isn’t entirely surprising after the February disaster that strained the entire system and left millions without power.

The exact causes of the outages aren’t all accounted for. Texas regulators on Wednesday ordered Ercot to release that kind of information within three days instead of the usual 60 days for any outages that occur this summer. Ercot is expected to release information on the June outages this week. While that will offer some color, it likely won’t be the full story, especially given that the information will be based on whatever the power plants have told Ercot. The independent market monitor, Potomac Economics, will investigate whether any market manipulation took place in those two events.

The tight supply conditions are a reminder of two separate but potentially compounding risks of a grid that offers large carrots in times of market tightness (up to $9,000 a megawatt-hour) but barely any sticks for being unavailable. Such a market gives generators little reason to maintain their power plants beyond the bare minimum, increasing the chances of unplanned outages. Secondly, in such a market, manipulation—withholding power from certain plants to reap outsize profits from others—is tempting. The combination seems to make for a potentially reinforcing spiral of risks, especially given the worn-down physical and financial state of power plants in Texas after the February storm.

The most obvious culprit for the outages is the storm itself, which left the grid severely strained. Beth Garza, former director of Ercot’s independent market monitor, pointed out that the June outages occurred on a Monday and that it isn’t uncommon for power plants to plan to go offline over the weekend for a quick fix only to have that outage extended because repairs took longer than expected.

Another possibility that can’t be ruled out is market manipulation. The electricity market fiasco in February led to high rewards for certain market participants and painful losses for others. The former group’s appetite for reward might have been piqued by the scarcity event, while for the latter, the rewards of spiking profits could start to overwhelmingly outweigh any costs of being caught out for manipulation.

Selling electricity in Texas isn’t terribly rewarding. Based on an analysis of annual reports that Ercot’s independent market monitor publishes every year, Ed Hirs, an energy economist who teaches at University of Houston, found that in eight out of the last 10 years revenues received by generators haven’t been enough to cover their costs.

A crew in Odessa, Texas, made repairs after the February storm. The exact causes of the widespread outages aren’t fully accounted for.



Photo:

Eli Hartman/Odessa American/Associated Press

Part of the problem is that market manipulation rules are rather lax. For example, Texas has a “small fish” rule that means companies controlling less than 5% of the system’s total capacity aren’t considered to have market power. Yet the independent market monitor has pointed out in previous reports that there were times when small fish would have been pivotal to the grid and able to increase the market’s power price.

A more far-fetched but nonzero possibility is that the winter’s strain provides easy cover for any power plant owners who need an explanation for withholding power from the market.

Ironically, Texas’s attempt to fix the winter problem could end up exacerbating these very risks. In June, the state passed a mandate ordering the public utility commission to establish rules for the weatherization of power plants, giving the commission power to levy fines as large as $1 million for those that don’t comply. Such measures would probably require more downtime among existing power plants and create more costs for them. And more financial strain could, theoretically, cause more market-manipulative behavior from power plants unable to recoup enough of their costs through normal course of business.

Moreover, Mr. Hirs notes that it is “entirely possible that some companies will just withdraw from the grid because they haven’t been covering their costs to date,” adding that some participants were running power plants that were already “essentially broken.”

On the other hand, there is already a lot of scrutiny following the cold snap in February. The Federal Energy Regulatory Commission opened an examination to determine whether any market manipulation was involved in both wholesale natural gas and electricity markets during the power shortage earlier this year. And, because the market was already under tight conditions for long spells in February, the maximum price that power plants can reap has come down to $2,000 per megawatt-hour, down from $9,000. Still, that cap is still well above the roughly $22 per MWh day-ahead prices seen for the market overall in 2020.

Scrutiny or not, power producers might be messing with Texas.

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Clean Energy ETFs Take a Hit, but Money Keeps Flowing In | Sidnaz Blog

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Investors have lost a bundle this year betting on solar-panel and wind-turbine makers. Their response: to double down.

A year ago, green stocks and the funds that track them rallied tremendously in the aftermath of the market’s recovery from a pandemic-induced swoon. Solar-panel and wind-turbine companies were among firms benefiting from a surge of investor- and consumer-driven demand for renewables, despite many being small unprofitable ventures.

This year, returns are trailing the broader stock market. That is thanks, in part, to stocks having run so far and uncertainty around the Federal Reserve’s interest-rate course and how its actions may ultimately affect growth stocks.

Exchange-traded funds that track renewable-energy indexes have posted double-digit declines so far this year.

BlackRock’s

iShares Global Clean Energy ETF

has fallen 18% since December;

Invesco Ltd.

’s popular

Solar ETF

has posted a 17% decline.

Even so, money continues to pour in. Professional money managers and individual traders alike have invested $6.2 billion into green-energy ETFs so far this year, according to data from Refinitiv Lipper. The inflows are on course to eclipse last year’s record $7.2 billion.

Index makers and asset-management firms say that, for now, large pullbacks in share prices don’t reflect investors’ desire to bet on green companies.

“It’s an area where we see continuous demand,” said

Ari Rajendra,

a senior director of strategy and volatility indexes at S&P Dow Jones Indices.

At BlackRock, the world’s largest asset manager, clean energy funds reported $2.7 billion in inflows so far this year and $1 billion into a European clean-energy fund, according to FactSet. Interest was so high that S&P had to broaden its clean-energy benchmark used by BlackRock funds to fix the problem of having too much money in mostly small, hard-to-trade companies.

Such changes don’t happen often, said S&P’s Mr. Rajendra, but intense demand from investors warranted the index’s revamp to 82 stocks from just 30. The firm also lowered the criteria for the inclusion of stocks, among other things.

Ross Gerber,

chief executive of Gerber Kawasaki Wealth and Investment Management, thinks renewable-energy stocks, from solar-panel makers to manufacturers of alternative batteries, will eventually transform transportation and other facets of everyday life.

A solar farm in Maine. With clean energy stocks pricey, they and funds that track them may be more vulnerable to market or political changes.



Photo:

Robert F. Bukaty/Associated Press

Mr. Gerber has put more client cash into Invesco’s clean-energy fund, contributing to the $446 million of total inflows into ETF so far this year. He shuns oil stocks, which are among the stock market’s best performers this year.

“The more speculative the stock, the higher the valuation. But in this market, people care more about fantasy than reality,” said Mr. Gerber. “So with solar, you have a little bit of the fantasy in there, too.”

Invesco’s solar ETF jumped 233% in 2020, while BlackRock’s global clean-energy fund soared 140%—easily the best years ever for both as valuations of green stocks climbed to dizzying heights.

Although both funds have declined in the year to date, valuations are elevated. Invesco’s solar ETF trades at a forward price/earnings ratio of 36, versus 21 for the S&P 500, according to FactSet.

In an interview with WSJ’s Timothy Puko, U.S. special climate envoy John Kerry explains the roles he’d like to see the private sector and countries play in fighting climate change. Photo: Rob Alcaraz/The Wall Street Journal

Meanwhile, clean-energy companies trade at a 70% premium to traditional energy companies based on a ratio of enterprise value to earnings before interest, taxes, depreciation and amortization, a standard valuation yardstick, strategists at

Bank of America

said. They noted this valuation was down from highs earlier this year but still well above the five-year average.

With stocks pricey, they and funds that track them may be more vulnerable to market or political changes. Their allure may dim, for example, if the Fed begins to raise interest rates earlier than expected, taking some of the shine off growth stocks.

Or volatility could increase if there are hiccups for a $1 trillion infrastructure plan agreed to by President

Biden

and some U.S. senators. Green stocks rallied last year after Mr. Biden won November’s presidential election, as investors bet the new administration would hasten the U.S.’s transition toward wind and solar energy and away from fossil fuels.

Investors already are experiencing some of that volatility. Clean energy stocks have rallied alongside growth stocks in recent weeks. Invesco’s solar fund is up nearly 11% over the past month, while BlackRock’s ETF has added 2.2%.

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The willingness of investors to continue pouring money into this part of the market shows they are positioning for a potential longer-term readjustment of the energy sector and economy.

Rene Reyna,

head of thematic and specialty product strategy at Invesco, said expectations are premised on a belief that technology will eventually bring the cost of batteries, solar panels and other green efforts down enough to garner wider adoption—and big profits. In that sense, clean energy is the “hope trade,” he said.

Construction at a wind farm in New Mexico last year. Clean energy companies trade at a 70% premium to traditional energy companies.



Photo:

Cate Dingley/Bloomberg News

Write to Michael Wursthorn at [email protected]

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The Natural-Gas Glut Has Evaporated, Driving Prices Higher | Sidnaz Blog

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Natural-gas prices are starting the summer air-conditioning season nearly twice as high as they were a year ago.

Demand for the fuel is picking up as the world’s economies reopen and as Americans dial down their thermostats for what is expected to be a hot summer. Meanwhile, U.S. producers have stuck to the skimpy drilling plans they sketched out when prices were lower, eliminating the glut that was keeping them depressed.  

Natural-gas futures ended Friday at $3.215 per million British thermal units, up 96% from a year ago and the highest price headed into summer since 2017. Futures traded even higher—and regional spot prices jumped—when triple-digit temperatures baked the Southwest earlier this month. Analysts expect prices to be even higher later in the year when it is time to fire up furnaces.

It isn’t just in the U.S. where gas is running high. Dutch gas futures, a barometer for prices in Western Europe, have more than doubled over the past year—including a sharp rise since February—to multiyear highs. In Asia, imported liquefied natural gas is fetching more than five times what it did last June, beckoning tankers full of chilled shale gas across the Pacific.

More expensive gas has stoked demand in international markets for coal, with which gas competes to fuel power plants. Futures prices for thermal coal loaded at a terminal in Newcastle, Australia, have more than doubled from a year ago. The benchmark price has added 27% over the past month and hasn’t been so high in nearly a decade.

If higher prices persist, Americans can expect bigger utility bills. The work-from-home class could feel a pinch. The pandemic shifted energy costs from employers to employees, who have heated and cooled home offices and run electronics when they would normally be away at work. 

Besides being burned to generate electricity and for hot showers and cooking, natural gas is consumed in large volumes to make plastic, fertilizer, steel and cement. Monetary-policy makers don’t consider energy prices when gauging inflation because they are so volatile. Yet climbing gas prices are adding to the costs of producing manufactured goods at a time when investors are on edge about the potential for runaway inflation.

“These are the consequences of the underinvestment we’ve seen in natural gas,” said Colin Fenton, chairman of investment banking at Houston’s Tudor, Pickering, Holt & Co. “What’s notable is these prices are happening with industrial demand, more than a quarter of the market, so early in its recovery.”

More natural gas has been needed to cool homes and businesses during a recent heat wave that pushed temperatures above 100 degrees in Los Angeles.



Photo:

David Paul Morris/Bloomberg News

U.S. natural-gas output peaked in December 2019. March marked the 11th straight month in which production in the contiguous 48 states declined, according to the U.S. Energy Information Administration. There are only five more rigs drilling for gas now than the 92 operating at the end of March, according to oil-field service firm

Baker Hughes Co.

Appalachian energy producers, which control the country’s gas spigots, have taken a cautious approach to reopening the wells they shut last spring when the pandemic sank prices. Drillers in the Haynesville shale that straddles Texas and Louisiana have been slow to tap their reserve of wells that have been drilled but not yet fracked to start them flowing. 

Gas producers had suffered for years from low prices caused by their own market-glutting gushers. Shareholders and analysts pressured producers to focus less on growing volume and more on profitability. 

The reward has been climbing stock prices. Shares of gas producers

Range Resources Corp.

and

Antero Resources Corp.

have been some of the best performers in the rebounding energy sector, both up more than 40% over the past three months. 

A mild start to winter threatened to leave the country’s gas-storage caverns filled to capacity until February, when Texas froze over. Demand for heat shot up at the same time that many ice-choked wells stopped flowing. 

Overseas buyers are clamoring for shale gas to restock depleted inventories after canceling cargoes a year ago. Demand from Mexico has increased with the opening of a new pipeline system south of the border. Drought has reduced hydropower in the western U.S., and it is being made up for with more gas to cool homes and businesses during the heat wave that last week pushed temperatures above 100 degrees in Phoenix, Las Vegas and Los Angeles.

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All the demand has meant smaller injections into U.S. stockpiles, which are built up during the spring and summer ahead of winter, when demand usually outstrips production. U.S. gas inventories, which brimmed near all-time highs in November, are now 16% below last year’s levels and 4.9% less than the five-year average for this time of year.

“In the past we’ve had these demand gains, but they were all overwhelmed by production increases,” said Kent Bayazitoglu, who tracks gas supplies for Baker & O’Brien Inc., an energy consulting firm. “We don’t have that any more.” 

Retail energy companies compete with local utilities to give U.S. consumers more choice. But in nearly every state where they operate, retailers have charged more than regulated incumbents, meaning you may be paying more for your electricity than your neighbor. Here’s why. Photo Illustration: Jacob Reynolds

Write to Ryan Dezember at [email protected]

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Oil Hits Pandemic High as Investors Bet on Green Energy | Sidnaz Blog

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Some investors are wagering that Wall Street’s preference for green energy will depress spending on oil extraction, setting the stage for supply shortages and higher fuel prices. 

The bets come as money managers line up trillions of dollars for wind, solar and other renewable programs and expenditures on oil projects tumble. The drop in fossil-fuel spending is becoming so severe that energy companies could struggle to quench the world’s thirst for oil, some analysts say.

Crude is still expected to remain in high demand over the next decade to make transportation fuels and petrochemicals used for plastics and other household products. U.S. consumption has surged lately following the worst of the coronavirus pandemic, and output cuts by the Organization of the Petroleum Exporting Countries have given prices a further boost. 

U.S. crude hit $71.48 a barrel Monday, its highest level in more than 2½ years, and has roughly doubled since the end of October. Some traders are using options, which allow the holder to buy or sell an asset at a specific price in the future, to wager on prices hitting $100 by the end of next year

Even after OPEC and its allies lift output in the months ahead, some analysts think production will struggle to catch up to demand, which the International Energy Agency projects will rise at least through 2026. Spending on oil extraction fell last year to about $330 billion, less than half the total from its 2014 record, according to research firm Wood Mackenzie. That figure is expected to rise just modestly this year and in the years ahead.

Leigh Goehring,

managing partner at commodities-focused investment firm Goehring & Rozencwajg Associates, said he thinks prices will soar in coming years as consumption tops production capacity for a sustained period for the first time ever. His firm lifted its investments in energy producers during last year’s crash and has maintained those holdings. 

“This is the basis for the next oil crisis,” he said. “We’re in uncharted territory.”

Analysts say an oil-price surge could happen like this: As more people resume travel following the pandemic, demand is expected to rise. That would allow OPEC to ease supply restrictions and lower global inventories of crude. If consumption continues climbing beyond 2022 as many expect, the world would then need more oil from the same companies currently being told by investors to limit spending, resulting in a supply shortfall. 

Some analysts expect surging demand and limited supply to lower global inventories and cause shortages.



Photo:

PHOTO: Drew Angerer/Getty Images

OPEC has the ability to quickly increase production, and there are currently ample reserves that could be tapped to respond to price spikes. But many on Wall Street are retreating from the fossil-fuel industry, leaving investors questioning whether companies would be able to raise enough money to fill any longer-term supply gaps. 

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In recent years, growing output from U.S. shale producers and giant oil companies suppressed prices. Now, many analysts doubt that these companies will rapidly beef up spending in the face of industry consolidation and mounting environmental pressure. Energy firms have recently slashed the value of their assets by tens of billions of dollars as the sector copes with last year’s wave of bankruptcies and project setbacks. 

Planned investment in oil supply globally falls about $600 billion short of what will be needed to meet projected demand by 2030, according to JPMorgan Chase & Co. analyst

Christyan Malek.

Pressure to deliver cash to shareholders, partly driven by worries about the long-run outlook for oil demand, has limited the industry’s ability to plow money into new projects, he said.

“It’s just hard to see where the capital is going to come from to grow at a rate that will be needed from 2022,” said

David Meaney,

founding principal of Assert Capital Management LP. The Dallas-based hedge fund is positioning for higher oil prices through futures and options.

The wagers are a reminder that the unprecedented transition to renewables and electric vehicles is still in its early stages and could go through several phases. It also shows the challenges facing producers like

Exxon Mobil Corp.

,

Chevron Corp.

and

Royal Dutch Shell PLC.

In addition to concerns about spending and shareholder returns, they are contending with mandates to limit environmental damage. Shell said last week that it would accelerate efforts to cut emissions following a Dutch court ruling ordering the company to take more drastic action.

As the economy recovers from the pandemic, the question confronting the energy industry is whether demand will eventually fall to match limited supplies, investors say. That reverses a decadeslong paradigm of wondering if production can catch up to consumption, with Wall Street debating uncertain estimates about the speed of the renewable transition. 

“I’m bullish on electric vehicles. It still takes time before they can take a meaningful chunk out of oil demand,” said

Jason Bordoff,

a former Obama administration energy adviser and the founding director of Columbia University’s Center on Global Energy Policy.

Another obstacle for producers: declining output from existing wells over time. The number of rigs drilling for oil in the U.S. remains about 60% below levels from the end of 2018 even as prices have surged, figures from

Baker Hughes

show. 

“Investors have made it clear to the energy sector: ‘Don’t spend a lot of money,’” said

Rob Thummel,

senior portfolio manager at energy asset manager Tortoise. “Boards and management teams have to listen to the shareholders.”

The energy industry isn’t alone in its cautious approach. Miners, which burned through cash the last time industrial metals prices shot higher, have also been reluctant to drive money into projects because investors have encouraged greater discipline.

Some analysts argue that concerns about a dearth of oil are overstated, particularly when large suppliers are still intentionally withholding copious amounts due to coronavirus disruptions. Producers and investors might be less disciplined in limiting capital spending and supply if prices surge and they could profit, they say.

But for now, many are positioning for shortages.

Hayal Ahmadzada,

chief trading officer at the trading arm of Azerbaijan’s national oil company, drives a

Tesla Inc.

electric car but expects crude to rise above $100 a barrel next year. 

“The transition has to be very careful to avoid the big disruptions,” he said. 

Investors are lining up huge sums to back wind, solar and other renewable projects, but a lack of financing for oil producers could have unintended consequences, some investors say. 



Photo:

PHOTO: Bing Guan/Bloomberg News

Write to Amrith Ramkumar at [email protected] and Joe Wallace at [email protected]

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Hedge Fund Behind Amazon-MGM Deal Amasses Big Bet on Uranium | Sidnaz Blog

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The hedge fund behind the

Amazon.com Inc.

-MGM Holdings Inc. deal has another trade up its sleeve: going big on uranium.

New York hedge fund Anchorage Capital Group LLC has amassed a holding of a few million pounds of uranium, people familiar with the matter say, in a bet that prices of the nuclear fuel will recover after a decade in the doldrums. It is buying and selling uranium alongside mining companies, specialist traders and utility firms with nuclear-power plants, turning the fund into a significant player in the market.

Venturing into the uranium market, which is much smaller than oil or gold markets, is unusual for a firm that typically invests in corporate debt. It is another example of money managers straying into esoteric markets in search of returns after a yearslong run-up in stocks and slide in a bond yields.

Anchorage was recently in the spotlight after scoring about $2 billion in paper profits from Amazon’s deal to buy MGM in May. The hedge fund became MGM’s biggest shareholder after the Hollywood studio emerged from bankruptcy in 2010.

Anchorage’s physical uranium holdings are also a rarity because Wall Street firms don’t typically own physical uranium. Most investors bet on uranium prices by buying shares of mining firms, or through companies like

Yellow Cake

PLC., which acts as an exchange-traded fund.

In the 2000s, investors piled into uranium trades, helping to power a run-up in prices that peaked in 2007. Most funds exited either during the 2008-09 financial crisis or after Japan’s 2011 Fukushima nuclear disaster sapped demand.

Goldman Sachs Group

has pared back its uranium trading book and

Deutsche Bank AG

has quit the market, leaving

Macquarie Group Ltd.

as the financial institution with the biggest presence.

The uranium that is usually traded takes the form of U3O8, a lightly processed ore. Prices for U3O8 have sagged since Fukushima knocked demand, leading to a glut that traders say has yet to be whittled down.

The material this week traded at $32.05 a pound, according to UxC LLC, a nuclear-fuel data and research company. Prices reached an all-time high of $136 a pound in 2007, according to records going back to 1987.

Anchorage is wagering on a reversal. Spearheaded by trader Jason Siegel, the fund began acquiring uranium a few years ago, because its analysis showed most miners were booking losses at prevailing prices, a person familiar with the fund’s thinking said. The fund bet that uranium prices would rise to encourage miners to produce enough material.

Mr. Siegel didn’t respond to requests seeking comment.

The entry of a financial firm has caused a stir in the uranium market. Anchorage buys and sells infrequently, but in large quantities that put it in the same league as big uranium merchants such as Traxys Group, participants say.

A Honeywell Specialty Materials plant in Metropolis, Ill.



Photo:

Steve Jahnke/Associated Press

Anchorage hasn’t publicly disclosed its interest in the uranium market, the size of its holdings or the terms of any specific transactions. The exact size of Anchorage’s position—a topic of speculation in the market—couldn’t be learned. The person familiar with the fund’s thinking said it owned fewer than five million pounds of uranium. The overall spot market for the nuclear fuel turns over 60 million to 80 million pounds each year, according to UxC.

Due to strict rules about where uranium can be held, trading typically doesn’t involve moving the fuel around the world. Firms instead take ownership of U3O8 stored in drums at three processing facilities in France, Canada and the U.S. When they sell, buyers take ownership on the spot. The transactions aren’t reported publicly.

Anchorage’s wager relies on buying uranium and selling it to utility companies and others at a higher price for delivery several years in the future, in what is known as a carry trade. Doing so could generate annualized returns of roughly 5% for Anchorage, according to people familiar with the matter.

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The hedge fund embeds options into sale agreements with utilities and other firms, people familiar with the matter say. This can involve selling fuel to a utility company at a discount in return for the right to deliver more uranium at a set price at a later date.

Anchorage isn’t alone in betting that prices are primed to rebound.

Investment firms including Segra Capital Management LLC, Sachem Cove Partners LLC and Azarias Capital Management LP expect that efforts to wean the world off fossil fuels will require new nuclear-power stations, according to executives at the funds. They are seeking to profit by buying shares of uranium miners or firms like Yellow Cake, which is up 31% in London trading over the past year.

Some investors hesitate to own uranium outright because of the perception that it can cause dangerous accidents, according to Joe Kelly, chief executive of brokerage Uranium Markets LLC.

“There’s a deterrent that does not exist in other commodities,” said Mr. Kelly.

Write to Joe Wallace at [email protected]

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U.S. Stock Futures Edge Up Ahead of Big Tech Earnings | Sidnaz Blog

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U.S. stock futures edged higher as investors watched for earnings reports from major technology firms a day after the Nasdaq hit a closing record.

S&P 500 futures gained 0.1% and Dow Jones Industrial Average futures rose 0.1%. Nasdaq-100 futures also added 0.1%. Changes in equity futures don’t necessarily predict moves after the markets open.

In Europe, the Stoxx Europe 600 meandered after the flat line in morning trade as gains in utilities and healthcare sectors were tempered by losses in consumer staples and information technology sectors.

Electricité de France

climbed 5.8% for a two-day run of gains.

The U.K.’s FTSE 100 added 0.1%. Other stock in Europe also mostly slipped as France’s CAC 40 traded broadly flat and lost 0.1%, the U.K.’s FTSE 250 shed 0.3% and Germany’s DAX was down 0.2%.

The Swiss franc and the British pound depreciated 0.1% against the U.S. dollar. Meanwhile, the euro was mostly flat against the U.S. dollar, with 1 euro buying $1.21.

In commodities, international benchmark Brent crude was up 0.7% to $65.47 a barrel. Gold remained flat, at $1,780.90 a troy ounce.

The yield on German 10-year bunds declined to minus 0.252% and the yield on 10-year gilts strengthened to 0.765%. 10-year U.S. Treasury yields gained to 1.580% from 1.568%. Bond yields move inversely to prices.

Indexes in Asia were mixed as Hong Kong’s Hang Seng rose 0.1% after falling as much as 0.5% during the session and China’s benchmark Shanghai Composite was flat after declining 0.7% earlier, whereas Japan’s Nikkei 225 index fell 0.5%.

The New York Stock Exchange on Monday.



Photo:

shannon stapleton/Reuters

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China’s Pursuit of Natural Gas Jolts Markets and Drains Neighbors | Sidnaz Blog

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China’s quest to anchor its industrial growth to cleaner energy is whiplashing global prices of liquefied natural gas, reshaping trade in the world’s fastest-growing fossil fuel and raising fears of power blackouts in neighboring economies competing for the resource.

A sudden confluence of global supply outages and an unusually cold winter tripled LNG prices in mid-January to a record $32.50 a million British thermal units from early December—and brought into focus China’s increasingly outsize role.

Underpinned by its economic boom and rising presence in LNG spot markets, Beijing’s efforts to shift from coal to gas as a fuel over the longer term has drawn ever-larger LNG imports in recent years, tightening supplies available to gas-dependent neighbors Japan and South Korea. The three economies account for 60% of the world’s LNG consumption.

China’s voracity worsened a natural-gas shortage in January in Japan—which China last year outstripped as the world’s largest LNG importer—that put parts of Japan at risk of blackouts. In December, China imported 7.6 million metric tons, the most ever. Utilities in Japan reported severe shortages of natural gas and averted blackouts by turning back to coal, oil and other older means of power generation.

Chinese LNG consumption rose last year by some 11%, far outpacing the 1% rise globally, data from consulting firm Wood Mackenzie shows. Imports meet about 45% of China’s demand, which has been rising since President Xi Jinping set around 2015 decadeslong plans to pipe natural gas into millions of Chinese homes and factories. Beijing views natural gas as a steppingstone—a cleaner fossil fuel—in its campaign for carbon neutrality by 2060.

Provincial authorities, including in southern Guangdong, began requiring more manufacturers to burn gas instead of coal last year, official reports say. And Beijing loosened rules in the past two years to allow more companies to import LNG, turning provincial gas distributors into more active bidders in spot markets once reserved for a handful of state-controlled giants.

“When you have an extreme need for supply and physically can’t deliver on it, then that underpins this type of price rallies.” said Jeffrey Moore, analytics manager at researcher S&P Global Platts.

Prices for the fuel have fallen to around $6.30 MMBtu in mid-February, an 81% dive from January’s record, as the fading cold snap eased buying competition. Just weeks earlier, the outsize imports didn’t seem to be enough. Platts estimates show that LNG stocks in northeast Asia were 64% of capacity heading into winter, well below the 70% average in previous years, forcing buyers to the spot market.

Unexpected shutdowns of export plants in Australia, the world’s top producer, and elsewhere, meant Asia had to rely on imports that needed three times as many days—or more—to ship.

In late December, China’s top economic policy body ordered domestic gas producers to operate at capacity and LNG shipping terminals to give priority to imports. Authorities also had to fall back to coal-fired power and ordered more coal imports, too.

“We are doing everything possible to increase supply of the resource,” the National Development and Reform Commission said at the time. “We are making every effort to increase the purchase of spot LNG.”

In Japan, power plants in the heavily populated Kansai region were running at 99% of generation capacity; more than the usual 60% for LNG-fueled plants. Japan depends on natural gas for about a third of its electricity.

The strains on Japan’s grid forced operators to turn to old playbooks, including running some plants beyond capacity and, in the case of Tokyo-based utility Electric Power Development Co., burning crude oil for two days in January to keep up power generation.

The heady prices in January were profitable even at the height of the rally: In China, prices for end-use LNG trucked into metropolitan Beijing were 20% higher than imports. The gap widened in smaller and less-developed cities.

“Our biggest priority is to have stable supply, which means we purchase from the spot market when necessary,” said Korea Gas Corp. spokesperson Kim Chi-ho. “This year, our spot purchases increased due to unexpected cold waves.”

Like most of its counterparts, state-owned Kogas locks in more than half its LNG supply through long-term contracts but relies on the spot market to meet sudden demand.

Taking Share

China has been buying ever-larger imports of LNG from Australia, the world’s largest supplier, which has been shipping relatively less to Korea and Japan in recent years.

Australia LNG exports

China’s huge presence has chipped away at its neighbors’ supplies. For years, Australia has been the top exporter to Japan, accounting for about a third of its LNG imports. But last year, Japan imported 26.3 million metric tons from Australia, down from each of the previous two years. Australian LNG shipments to China rose 5% year over year to a record 29 million metric tons last year.

Korean data shows that Australian LNG imports have stayed largely flat since 2018. Korea began looking elsewhere for shipments in recent years. The U.S. share of Korea’s LNG imports has risen to 14% in 2019 from 1% in 2016, after Kogas agreed in 2017 to long-term supply by Houston-based Cheniere Energy Inc.

But China, too, is shipping more from the U.S., with imports reaching a record 3.2 million metric tons last year, up 50% from 2018.

China’s gas demand is set to keep rising, underpinning the potential for supply shocks to turn prices volatile in coming years.

“Even before winter, there were a lot of policies to hasten infrastructure investment” in China’s LNG storage and connectivity, said Woodmac analyst Miaoru Huang. “But I think after this price spike, there will be renewed incentive to advance the build.”

In the biggest climate commitment made by any nation, China pledged to go carbon neutral by 2060. While it will be challenging for Beijing to achieve its goal, China’s plan to become a green superpower will have ripple effects around the world. Illustration: Crystal Tai

Write to Chuin-Wei Yap at [email protected] and Chieko Tsuneoka at [email protected]

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Disney, HubSpot, Cloudflare: What to Watch When the Stock Market | Sidnaz Blog

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Here’s what we’re watching ahead of Friday’s trading action.

U.S. stock futures edged lower Friday, putting the S&P 500 on track to end the week with muted gains after notching its ninth record closing high for 2021.

Futures tied to the S&P 500 slipped 0.2%, pointing to a drop after the opening bell. Contracts linked to the Nasdaq-100 Index edged down 0.1%, suggesting that technology stocks may also slip. Read our full market wrap.

What’s Coming Up

The University of Michigan’s consumer sentiment index for the opening weeks of February, due at 10 a.m. ET, is expected to inch up to 80.8 from 79.0 at the end of January.

Market Movers to Watch

—All hail Baby Yoda. Walt

Disney


DIS 0.67%

shares were up 1.6% ahead of the bell after the entertainment giant reported a first-quarter profit, as its flagship streaming service, Disney+, added more than 21 million new subscribers during the period. But the pandemic continued to zap results in the company’s movie-distribution and theme-park segments.

Pedro Pascal as the Mandalorian, with the Child, aka Baby Yoda.



Photo:

Disney+/Everett Collection

HubSpot


HUBS 1.96%

shares surged 21% premarket. The marketing-and-sales software platform provider reported earnings after Thursday’s close. Piper Sandler raised its price target for the stock.

DexCom


DXCM 2.69%

shares dropped 4.9% premarket. The medical-device manufacturer reported quarterly results after Thursday’s close.

Cognex


CGNX 1.66%

shares jumped 10% ahead of the bell. The maker of barcode readers and machine-vision systems reported earnings that beat estimates.

PayPal


PYPL 0.65%

shares added 2.9% premarket. CEO

Dan Schulman

said at the digital-payments company’s virtual investor day presentation Thursday that it expects to nearly double the number of active accounts it has by 2025.

Cloudflare


NET 0.41%

‘s shares dropped 6% premarket even after the cybersecurity company’s results and outlook topped Wall Street expectations.

Expedia


EXPE 0.68%

shares edged down 1.3% premarket after the digital-travel company reported a wider loss and weak demand for its latest quarter, as the pandemic continued to complicate travel plans.

Market Fact

Funds that select stocks based on environmental, social and governance, or ESG, criteria in 2020 attracted inflows of $194 billion, according to

Bank of America.

Chart of the Day

Shares of videogame retailer

GameStop


GME -0.20%

have tumbled in the past two weeks, as has individual investors’ interest in the trade.

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Why Women Investors Won’t Embrace Stocks

GameStop Mania Is Focus of Federal Probes Into Possible Manipulation

Alden Is in Talks to Buy Tribune Publishing

Bumble Stock Surges in Trading Debut

U.K. Economy Suffers Biggest Slump in 300 Years

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