Evening Report | July 26, 2022

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More Russian attacks on Ukraine’s key port cities... Russia targeted Ukraine’s Black Sea port cities of Odesa and Mykolaiv with air strikes Tuesday, hitting private buildings and port infrastructure along the country's southern coast, Ukraine said. The attack on Ukraine’s key port areas raises questions about the recently signed grain export deal. One of the questions we raised after the deal was signed last Friday was whether Russia would attack export facilities to keep Ukraine from shipping large quantities of grain. More than 90% of Ukraine’s grain exports depart from Odesa or Mykolaiv ports on the Black Sea. The port of Mykolaiv was not covered under the grain export deal.

According to Sergey Bratchuk, spokesman for Odesa’s military administration, the missiles were launched by “strategic aircraft” and hit the province’s coast. “No military base, no troops. The Russian terrorists just wanted to shoot. They will be held accountable for this," President Volodymyr Zelenskyy said on Instagram.

Russia previously attacked Odesa’s port last weekend. The British military said Tuesday there was no indication that a Ukrainian warship and a stockpile of anti-ship missiles were at the site, as Moscow claimed. The British Defense Ministry said Russia sees Ukraine’s use of anti-ship missiles as “a key threat” that is limiting its Black Sea Fleet. “This has significantly undermined the overall invasion plan, as Russia cannot realistically attempt an amphibious assault to seize Odesa,” the military said. “Russia will continue to prioritize efforts to degrade and destroy Ukraine's anti-ship capability.”

Ukraine seeks IMF loan by year-end... Ukraine aims to strike a deal for a $15 billion to $20 billion program with the International Monetary Fund (IMF) before year-end to help shore up its war-torn economy, the country’s central bank governor Kyrylo Shevchenko told Reuters. Due to the war, Ukraine faces a 35% to 45% economic contraction in 2022 and a monthly fiscal shortfall of $5 billion.

Shevchenko said his country had already submitted its request to IMF and was now in consultation over the new financing that he hoped would provide as much as $20 billion over two or three years in form of a Stand-By Arrangement (SBA) or an Extended Fund Facility (EFF). Shevchenko also said he hoped to agree on a swap line with the Bank of England “within weeks,” though he did not specify the amount. Ukraine’s central bank already has a 10 billion euro ($10.12 billion) precautionary swap line with the European Central Bank and a $1 billion line with Poland’s central bank.

IMF cuts global economic growth forecasts... IMF now expects the world economy to grow 3.2% in 2022 before slowing to a 2.9% GDP rate in 2023 — marking a downgrade of 0.4 and 0.7 percentage points, respectively, from its April forecasts. The Washington-based institute said the revised outlook indicated the downside risks outlined in its earlier report were now materializing. Those include soaring global inflation, China’s slowdown and the war in Ukraine. “The world may soon be teetering on the edge of a global recession,” IMF Chief Economist Pierre-Olivier Gourinchas said.

The anticipated slowdown would mark the first quarterly contraction in global real GDP since 2020. A “plausible” but less likely alternative scenario could see global growth fall to around 2.6% in 2022 and 2.0% in 2023, IMF said, putting global growth in the bottom 10% of outcomes since 1970.

Worsening growth prospects in the U.S., China and India drove IMF’s downward revisions. The U.S. GDP outlook was lowered 1.4 percentage points to 2.3%, driven be weaker-than-expected growth in the first half of 2022, reduced household purchasing power and tightening monetary policy. China’s economy is now expected to grow 3.3% in 2022 — down 1.1 percentage points from the previous forecast and its lowest clip in four decades, barring the initial fallout from the Covid-19 crisis in 2020.

Consumer confidence falls to lowest level in nearly a year-and-a-half... The Conference Board’s consumer confidence index dropped 2.7 points to a reading of 95.7 this month, the lowest level since February 2021 and 1.5 points lower than economists expected. It was the third straight monthly decline. The survey’s present situation index, based on consumers’ assessment of current business and labor market conditions, fell to 141.3 from 147.2 in June. Its expectations index, based on consumers’ short-term outlook for income, business and labor market conditions, ticked down to 65.3 – the lowest since March 2013.

The survey showed consumers sharply reassessing their spending plans this month, with the share of those polled intending to purchase major appliances like refrigerators and washing machines over the next six months the smallest since the current series began in late 2010. Consumers this month also showed less inclination to buy a house as rising mortgage rates eroded affordability, suggesting there would be further declines in home sales. A separate report from the Commerce Department showed new home sales tumbled 8.1% to a seasonally adjusted annual rate of 590,000 units last month, the lowest level since April 2020.

USDA begins making SMHPP payments... USDA is increasing the amount of funding available for the Spot Market Hog Pandemic Program (SMHPP) and expects to issue approximately $62.8 million in pandemic assistance payments to hog producers starting this week. SMHPP assists eligible producers who sold hogs through a spot market sale from April 16, 2020, through Sept. 1, 2020.

“In order to provide more targeted support to hog producers affected by the pandemic, FSA was able to increase funding for SMHPP to provide full payments to producers instead of applying a payment factor,” said FSA Administrator Zach Ducheneaux. “We are pleased to be able to provide more equitable opportunities for hog producers who were hard-hit by the pandemic.”

SMHPP payments will be calculated by multiplying the number of head of eligible hogs, not to exceed 10,000 head, by the payment rate of $54 per head. FSA originally planned to apply a payment factor if calculated payments exceeded the allocated $50 million in pandemic assistance funds for SMHPP. Payments are not expected to be factored due to the decision to increase funding enabling producers to receive 100% of the calculated SMHPP payment.   

There is no per person or legal entity payment limitation on SMHPP payments.

Biden planning to announce new climate actions this week... President Joe Biden’s actions are intended to help mitigate wildfire risk and protect vulnerable communities from extreme heat. The administration outlined new plans to plant 1 billion trees as part of an effort to help eliminate a “backlog” of reforestation needs in the U.S. and help mitigate wildfire risk. USDA has invested more than $100 million in reforestation so far this year under funds allocated by the bipartisan infrastructure bill.

Later this week, Biden also plans to announce new resources for communities dealing with extreme heat and will detail new initiatives “to help lower families’ utility bills by expanding access to more affordable sources of clean energy,” a senior administration official told E&E News.

U.S. to sell more oil from SPR... The Biden administration announced it will sell an additional 20 million barrels of oil from the Strategic Petroleum Reserve (SPR) as part of a previous plan to tap the facility to calm oil prices. The U.S. has already sold 125 million barrels from the reserve with nearly 70 million barrels delivered to purchasers, a senior administration official said.

The U.S. will take bids this fall to begin the process of buying back 60 million barrels of crude for reserve, a first step in replenishing the stockpile after the 180-million-barrel release, the Department of Energy said in May. The department will soon propose a rule to help put oil back into the SPR, where levels have sunk to 475.5 million barrels, the lowest since June 1985, by allowing it to enter forward contracts to purchase oil in future years at fixed, preset prices.

Oil industry touts study showing exports favored over calls for ban... Industry groups are marketing U.S. oil exports as a global price-lowering mechanism against calls from some Democrats and environmental groups for a ban to be reinstituted in response to high fuel prices. The American Petroleum Institute (API) and the American Exploration and Production Council released the findings of a jointly-commissioned study, which estimated that, since the petroleum export ban was lifted in 2015, U.S. consumer spending on refined products and natural gas was $92 billion lower than it otherwise would have been because of the increase in production tied to the lifting of the ban. “Lifting the crude oil export ban allowed U.S. oil prices to converge with international benchmarks, spurring more drilling activity and leading to higher crude oil production,” said the analysis, which was developed by consultancy ICF.

It also estimated that the lifting of the ban reduced global oil prices by $1.93 per barrel over six years and contributed $161 billion to U.S GDP. The U.S.  was exporting less than 500,000 barrels of crude oil per day in 2015 before the ban was lifted, and now consistently exports more than 3 million bpd.

Mike Sommers, API’s president and CEO, said the findings show that “if the U.S. is not exporting energy, it leaves the door open for unstable nations or those with less stringent environmental standards to fill the void and reap the benefits.”

The Biden administration told oil producers in December it would not pursue an export ban, although Energy Secretary Jennifer Granholm more recently said Biden isn’t willing to take it off the table.

U.S. has become world’s largest exporter of LNG... Increased demand from Europe amid the war in Ukraine drove a rise in exports to an average of 11.2 billion cubic feet per day, a 12% jump compared to the second half of 2021. Roughly 71% of LNG exports were shipped to the European Union and Great Britain during the first five months of the year, according to the Energy Information Administration. Shipments to Europe have surpassed what President Joe Biden promised.

U.S. officials are concerned about China’s statements about Taiwan... U.S. officials fear Beijing might try to move against the island. Biden administration officials are worrying China is getting more aggressive toward Taiwan and could make a significant move this year or next, perhaps limiting access to the Taiwan Strait. The internal worries have sharpened in recent days, as the administration quietly works to try to dissuade House Speaker Nancy Pelosi (D-Calif.) from going through with a proposed visit to Taiwan next month, U.S. officials say. Pelosi would be the first speaker to visit Taiwan since 1997, and the Chinese government has repeatedly denounced her reported plans and threatened retaliation. Link for details via the New York Times.