Northrop Grumman shares hit turbulence at the start of the US cash session after the defense contractor reported a $1.2 billion charge in the fourth quarter on its B-21 Raider program, a sign costs have skyrocketed since it won the contract in 2015. 

Under the fixed-price deal, Northrop will lose money on the first five B-21s. The defense contractor and the Pentagon agreed to cap the price of each next-generation stealth bomber that replaces the B-2 Spirit and B-1 Lancer at around $700 million.

B-21 RAIDER FIRST FLIGHT 11-10-23 #RAIDER33 #B21Raider pic.twitter.com/3tEKudqDiw

— Matt Hartman (@ShorealoneFilms) November 10, 2023

Investors were not pleased with the new development. Shares of the defense contractor tumbled 4% at the start of the cash open. 

Here’s an earnings snapshot of the fourth quarter (courtesy of Bloomberg):

• Sales $10.64 billion, +6% y/y, estimate $10.44 billion
• Aeronautics Systems sales $2.91 billion, +5.5% y/y, estimate $2.82 billion
• Defense Systems sales $1.65 billion, -0.7% y/y, estimate $1.55 billion
• Mission Systems sales $3.06 billion, +4.6% y/y, estimate $3.01 billion
• Space Systems sales $3.60 billion, +9.9% y/y, estimate $3.66 billion
• Aeronautics systems operating loss $1.27 billion vs. profit $289 million y/y, estimate profit $281.1 million 
• Defense systems operating income $202 million, +10% y/y, estimate $187.5 million
•  Mission systems operating income $462 million, +2.2% y/y, estimate $468.7 million
• Space systems oper income $304 million, +2.4% y/y, estimate $339.9 million
• Free cash flow $1.63 billion
• Capital expenditure $803.0 million, +27% y/y
• Backlog $84.23 billion
• Fourth quarter 2023 net loss totaled $535 million, or $3.54 per diluted share, and 2023 net earnings were $2.1 billion, or $13.53 per diluted share

And year forecast:

• Sees adjusted EPS $24.45 to $24.85, estimate $24.23 (Bloomberg Consensus)
• Sees sales $40.80 billion to $41.20 billion, estimate $41.15 billion
• Sees free cash flow $2.25 billion to $2.65 billion
• Sees capital expenditure about $1.80

Wall Street analysts tracked by Bloomberg show eight buys, 14 holds, and two sells on Northrop. 

Analysts have an average of $505.90 12-month price target. 

With economist and Wall Street strategists confident that in the fourth quarter US growth would slow sharply after the inventory accumulation-driven Q3 surge which saw the economy explode by 4.9% (down from a 5.2% initial print), moments ago Biden’s Bureau of Economic Analysis once again shocked everyone when it reported that in Q4, the US economy actually grew by 3.3% (3.280% to be precise)…

… which was not only above the median consensus of 2.0%, not only above the highest Wall Street estimate of 2.5%, but it was a 5-sgima beat to expectations!

So how can literally everyone on Wall Street be this wrong, and what the hell was Biden’s BEA cooking?

Well, according to the official report, “the increase in the fourth quarter primarily reflected increases in consumer spending and exports. Imports, which are a subtraction in the calculation of GDP, increased.“

Reading down the report we find the following:

The increase in consumer spending reflected increases in both services and goods. Within services, the leading contributors were food services and accommodations as well as health care. Within goods, the leading contributors to the increase were other nondurable goods (led by pharmaceutical products) as well as recreational goods and vehicles.

Keep that last in mind for a minute, we’ll revisit it shortly:  Finally, “the increase in exports reflected increases in both goods (led by petroleum) and services (led by financial services).”

That said, Q4 GDP was below Q3, and according to the BEA, the “deceleration in GDP in the fourth quarter primarily  reflected slowdowns in inventory investment, federal government spending, housing investment, and consumer
spending. Imports decelerated.”

A more granular analysis reveals the following details:

• Personal consumption contributed 1.91%, more than half of the 3.280%. On an annualized basis, this amounted to a 2.8% increase, better than the 2.5% expected, but down from 3.1% last quarter.
• Fixed Investment also dipped, adding 0.31% to the bottom line number, down from 0.46% in Q3
• The change in private inventories was flat, contribuing 0.07% of the bottom line number, and denying expectations of a decline due to Q4 destocking after last quarter’s 1.27% inventory change surge.
• Also in the unexpected column was the contribution from net exports, which added 0.43% to the bottom line number, up from 0.03% last quarter, as exports supposedly surged despite the sharp jump in the dollar in Q4.
• Finally, government contributed another 0.56% of the bottom line number, which while down from 0.99% in Q3, has continued a bizarre series where government remains one of the largest GDP contributors.

And visually:

Turning to the all important consumption, we can’t help but smile when noticing that the BEA is again resorting to such favorite GDP-boosting gimmicks of the old Obama administration as spending on healthcare and… RVs! The two contributed to roughly half the growth in consumer spending in the fourth quarter.

Hilarious RV spending spree aside (although in Biden’s economy nobody can afford a house so it does make sense), some of the beat was also a function of a lower-than-expected deflator, which also impacted the unexpected positive contribution from exports which, again, made no sense in light of the much stronger dollar.

Turning to the inflation components, core PCE inflation was in line, which is what matters for the Fed, however this number was stale and we will get a more accurate, monthly not quarterly, print tomorrow. Specifically, Personal consumption expenditures (PCE) prices increased 1.7% in the fourth quarter after increasing 2.6% in the third quarter. Excluding food and energy, the PCE “core” price index increased 2.0%, the same increase as in the third quarter, and in line with estimates.

Finally, real disposable personal income (DPI) – personal income adjusted for taxes and inflation -increased 2.5% in the fourth quarter after increasing 0.3% in the third quarter. Current-dollar DPI increased 4.2% in the fourth quarter, following an increase of 2.9% in the third quarter. The increase in the fourth quarter reflected increases in compensation, personal income receipts on assets, and proprietors’ income that were partly offset by a decrease in personal current transfer receipts.

One can also argue that much of the spending came from the continued drain of savings, and one would be right: personal savings as a percentage of DPI was 4.0% in the fourth quarter, compared with 4.2% in the third quarter. This number will keep dropping.

Overall, as Bloomberg concludes, one can argue that the GDP figure was fairly neutral for markets, as private domestic demand was largely in line with forecasts, as was core inflation.

Authored by Simon White, Bloomberg macro strategist,

Perpetual motion machines shouldn’t exist. Yet the stock market seems to have found one. After initially striking turbulence when the Federal Reserve began hiking rates in 2022, equities have stabilized and are in a seemingly unshakable uptrend. Credit, volatility, option speculation and well-behaved inflation expectations are in a virtuous circle, keeping the market grinding higher.

Stocks are navigating the thin aperture of the Panama Canal.

Either a return to a low-and-stable inflation regime, or a re-acceleration in price growth — which unanchors inflation expectations and decimates the real value of stocks — would leave them in a precarious spot.

Their gains are thus built on a bed of sand, and are highly sensitive to any change in the inflation outlook.

The stock-market’s perpetual motion machine has two engines, the first of which is the positive stock-bond correlation. Equities started moving in concert again after spending most of the last two decades moving oppositely to one another. Rising inflation is the main reason, with both assets moving increasingly together as CPI rises.

Elevated price pressures mean shocks in growth and inflation are more likely to occur at the same time, i.e. stocks and bonds could fall together.

Not great if you own bonds as a hedge for your equity portfolio. But a positive stock-bond correlation, when neither growth nor inflation is in a bad way as with today, has the fortunate side-effect (if you are a long-only investor heedless of the underlying risks) of lower volatility leading to a cheaper cost of credit.

Why? The total cost of credit is made up of the credit spread and the yield on government bonds. Typically, as can be seen in the top panel of the chart below, credit spreads and the VIX are positively correlated, i.e. a lower VIX means cheaper credit.

But that effect is dulled when the stock-bond correlation is negative.

As the bottom panel in the chart shows, the VIX tends to be negatively correlated with 10-year yields when stocks and bonds move inversely. So even though credit spreads fall as the VIX falls, yields rise, meaning the total cost of credit may not drop by much, if at all.

On the other hand, when the stock-bond correlation is positive, as today, the VIX becomes uncorrelated or positively correlated with the 10-year yield. A lower VIX therefore tends to have a bigger impact on reducing the cost of credit, which in turn makes the equities of companies in the aggregate more attractive. This ties with what we actually observe, with credit spreads and stock prices exhibiting a strong negative correlation.

In fact, the VIX is a direct input to credit-pricing models via the Merton distance-to-default model.

It might be an elegant solution to divining how likely firms are to default, but its inventor probably didn’t reckon with the speculative behavior seen today in stocks, repressing both implied and realized volatility and thus artificially making companies look less likely to go bankrupt.

And this neatly brings us on to the second engine of the perpetual motion machine: a lower VIX.

That low volatility tends to accompany elevated inflation may seem paradoxical, but that is the case historically.

The explanation comes from forward prices (as we have touched upon in this column previously). Higher inflation elicits higher interest rates, which in turn causes the forward price of equity indexes to rise. (The cost of financing a forward rises when rates rise, and this is reflected in a higher forward price.)

Equity options, including those that make up the VIX, are priced not off the spot price of the S&P but its forward price. This has the effect of increasing the price of call options and decreasing the price of puts.

Put options typically cost more than calls (as downside insurance is more expensive), and they tend to be more out-of-the-money. Given the VIX is a weighted average of all puts and calls (with about 1-month expiry), higher forward rates are thus associated with a lower VIX. This is borne out by what we actually observe. As the chart below shows, we are now at the most extreme high forward price/low VIX in over 25 years.

Falling implied volatility makes selling volatility more attractive — strategies like selling calls against long positions are very popular. But this has the effect of lowering realized volatility through the hedging behavior of the dealers who are long the call options (the dealers are long gamma).

This increasingly frenetic speculative behavior, charged by the explosion in 0DTE options, has the net impact of increasing the S&P’s risk-adjusted return, bolstering its attractiveness as an investment, and thus fueling its grind to yet higher levels.

In fact, high Sharpe ratios should be a warning, not an inducement, as repressed volatility has a tendency to explode higher, taking prices much lower with it, and decimating the risk-adjusted return.

Nevertheless, for now the game is in play.

And as we have seen it is one plank of a symbiotic relationship between inflation, credit and volatility driving the stock market higher in a seemingly never ending positive feedback loop.

But perpetual motion machines don’t exist, as they contravene the Second Law of Thermodynamics.

There are no equivalent iron-clad universal laws for stocks, and if something seems too good to be true, it generally isn’t.

Punters and investors alike should therefore continue to monitor inflation closely, because stocks won’t be able to thread the needle between the Great Moderation and the Great Inflation indefinitely.

Against expectations of a small rise from 0.03 to 0.06, The Chicago Fed’s National Activity Index (which draws on 85 economic indicators) tumbled to -0.15 in December. 2023 ends with 8 of the 12 months in negative territory…

Source: Bloomberg

Under the hood, 48 of the 85 inputs made a negative contribution with all major subcategories weaker MoM and only personal consumption barely above zero…

• Production and Income -0.06

• Employment -0.06

• Personal Consumption +0.01

• Sales & Orders -0.04

CFNAI’s Diffusion Index remains significantly weak…

This indicates below-trend-growth in the national economy and a sign of easing pressures on future inflation

After November’s huge jump (thanks to a surge in non-defense aircraft and parts orders – which we suspect we won’t be seeing anytime soon given the shit-show at Boeing), analysts still expected another significant (+1.5% MoM) rise in preliminary December Durable Goods Orders data.

Disappointingly, orders printed unchanged (a notable miss) with November’s data revised up to +5.5% MoM. The unchanged MoM in December left 2023’s durable goods orders up 3.7% YoY…

Source: Bloomberg

Non-defense aircraft orders rose 0.4% MoM (after rising over 80% in the prior month) – and with Boeing’s issues, we would be surprised to see it rise much anytime soon.

Defense orders fell MoM for the second straight month…

However, core capital goods shipments, a figure that is used to help calculate equipment investment in the government’s gross domestic product report, declined for the third month in a row – down 0.1% YoY – the first YoY decline since Jan 2021…

Source: Bloomberg

Not a good sign for manufacturing (which saw its PMI surge because supply chain disruptions are being interpreted as a positive!!?)

We’re gonna need moar war!

Authored by Ryan Morgan via The Epoch Times (emphasis ours),

House Judiciary Committee Chairman Jim Jordan (R-Ohio) subpoenaed the Department of Health and Human Services (HHS) on Monday, compelling the department to turn over data and information about how it deals with “unaccompanied alien children” (UACs) encountered at the U.S.–Mexico border who are found to have gang and criminal ties.

HHS is responsible for detaining and accounting for the care of illegal immigrant children who arrive at the southern border without an adult guardian. Many of these UACs are allowed to enter the United States if they can be placed with a sponsor while they await their immigration proceedings. This sponsor placement process is handled by HHS’s Office of Refugee Resettlement (ORR).

Mr. Jordan said he has been seeking information from the HHS since June, regarding how the department and ORR vet their UAC sponsors and what the department’s protocols are for UACs with ties to criminal activity. To date, Mr. Jordan said the responses he has received have been “woefully inadequate.”

Disappointed with the response thus far, Mr. Jordan announced in a Tuesday letter to HHS Secretary Xavier Becerra, that he would now move forward with the records requests through a subpoena.

“For more than six months, the Committee has asked for your cooperation with a series of requests arising from the Committee’s transcribed interview of ORR Director Robin Dunn Marcos. During the interview, Ms. Dunn Marcos was unable to answer many of the Committee’s questions, such as whether ORR has a policy to refer known gang members to the Department of Justice,” Mr. Jordan wrote on Tuesday.

Mr. Jordan further stated Ms. Dunn Marcos did not have requested data regarding how many UAC sponsor applicants her office had rejected, and how many UACs her office had placed with sponsors who are known sex offenders.

“Instead, the HHS attorneys at the interview represented that the Department would provide the Committee with the requested information at a later date,” Mr. Jordan wrote.

Mr. Jordan said HHS eventually replied on Sept. 29, but rather than provide the requested data, the Ohio Republican said HHS had instead offered “a series of generalized statements that partially touched on a small fraction of the Committee’s requests.”

Questions for Becerra, HHS

The subpoena now calls for Mr. Becerra to come before the House Judiciary Committee on Feb. 20 to provide answers on a range of questions regarding UACs.

According to a copy reviewed by NTD News, the subpoena reiterates the question of whether ORR refers encounters with criminally affiliated UACs to the Department of Justice.

The subpoena also asks for HHS data for the number of serious incident reports coming from HHS-funded facilities, disaggregated to show how many of these reports stem from allegations of sexual misconduct, violence, drug use or distribution, or gang activity.

The subpoena also requests HHS disclose how many UAC sponsors have been rejected because the sponsor had a prior conviction for murder, child abuse or neglect, or conviction related to the possession or distribution of sexually exploitative materials involving children. In the inverse, the subpoena also calls on HHS to reveal how many UAC sponsor applications have been approved despite these specified types of convictions, and the number of UACs that ORR has been unable to contact after being released to a sponsor.

Mr. Jordan’s subpoena also asks for data detailing how often DNA tests are used to verify a UAC sponsor’s claimed familial relationship to the UAC.

NTD News reached out to HHS for comment about the subpoena and past efforts to provide this kind of requested information to Mr. Jordan and the House Judiciary Committee. NTD News did not receive a response by press time.

Family Suing HHS After Murder Involving UAC Suspect

Mr. Jordan’s subpoena to HHS comes just days after the family of Kayla Hamilton—a woman authorities believe was killed in 2022 by a minor illegal alien with ties to the El Salvadoran MS-13 street gang—announced plans to sue HHS and the Department of Homeland Security, alleging negligence by the government departments.

According to the lawsuit, the murder suspect was detained while trying to cross the U.S. southern border but was later permitted to enter the United States through what the family alleges were acts of negligence or recklessness in their processes for dealing with minor illegal immigrants they encounter at the southern border.

The lawsuit alleges DHS employees failed to take several precautions when they first encountered the murder suspect at the U.S. southern border, including checking him for gang-related tattoos or contacting the government of El Salvador to confirm whether he had gang affiliations. The lawsuit further alleges wrongdoing by HHS, claiming department officials placed Ms. Hamilton’s murder suspect with a non-verified UAC sponsor who was not a family member of the suspect.

The lawsuit alleges the individual suspected of murdering Ms. Hamilton ran away from his sponsor and ended up in Aberdeen, Maryland, where he rented a room with Ms. Hamilton from a landlord the lawsuit alleges is also an illegal immigrant.

Ms. Hamilton’s mother, Tammy Nobles, has previously testified before Congress about her daughter’s murder, in May and again last week.

From NTD News

By Garfield Reynolds, Bloomberg markets live reporter and strategist

If a week is a long time in politics then a couple of weeks is an eternity in rates markets.

Traders came into this year feeling pretty certain the first cab off the central bank rank would be a 25-basis-point interest-rate cut from the Federal Reserve in March. Those bets have rapidly been unwound after policymakers pushed back against them and data signaled a still strong economy. Swaps contracts now show about a 36% chance the Fed lowers its benchmark that month, tumbling from 86% odds seen Jan. 15.

The most likely first mover is now seen to be the Bank of Japan, even though Governor Kazuo Ueda’s cautious stance meant that traders two weeks ago were favoring the idea he would retain the world’s last remaining negative interest rate until the second half of 2024. Now they see almost an 80% chance the BOJ hikes rates by 10 basis points in April.

Japanese bonds sold off in response Wednesday, and Treasuries also slid as fresh US data underscored the resilience of the economy there. This looks like turning into something of a vicious spiral higher for global yields, especially if Thursday’s European Central Bank meeting also demonstrates a relatively hawkish tone.

In an event that has now become an international debate and diplomatic snafu, a popular YouTube piano player by the name of Brendan Kavanagh was filming a live stream at a public piano at London St Pancras station when Chinese citizens, some of them known to work for CCP groups in the UK, confronted him.

Kavanagh is renowned for his surprise musical performances at public pianos around the UK, where he entertains shoppers and travelers.  In the UK, filming in public is legal and does not require permission, nor does it require release agreements from any of the people that might end up on camera.  However, Chinese “tourists” later identified as members of the CCP, some of them working for CCP front organizations in the UK, were apparently not aware of this, or just didn’t care.  The full confrontation is available in the video below:

One female member of the group initially has a friendly conversation with Kavanagh, who is told by another man that they are filming for Japanese TV.  This proved to be incorrect, or perhaps a miscommunication.  The woman was later identified as Adelina Zhang, a CCP agent who has hosted state functions for China in the UK for many years, rubbing elbows with some of Britain’s top politicians.  

The friendly exchange becomes aggressive, however, when other members of her team realize they are on film and Kavanagh is a YouTuber.  They argue that he is not allowed to film them or post the video to YouTube because they have a “non-disclosure” agreement with the company they are working for (they claim they were waiting to use the piano to film a sequence for Chinese TV).  They threaten “legal action” if Kavanagh posts the video.  

Kavanagh points out they are in Britain, not in communist China, and that he has every right to film in a public area.  

The man who escalates the argument into threats and accuses the piano player of “racism” for calling the Chinese flag “communist” is Newton Leng.  He works as a consultant for Financial Times and is a member of the IOE Confucius Institute, a well known front organization for the CCP operating in numerous western countries.  The Confucius Institute has been investigated on a number of occasions for infiltration of key British organizations and for the promotion of the Chinese communist ideology in western schools.

One can easily gather that these are people who are used to having their orders obeyed, and they didn’t know how to respond to Kavanagh when he began questioning their demands.  They quickly shift from fake friendliness to authoritarian posturing to violent screaming when it becomes clear they are not going to get what they want.  It is perhaps a rare insight into how communist party members operate in China when they engage with the general population (the peasantry) – making the rules up as they go.

Brendan Kavanagh noted in a recent interview on the event that he has been contacted by a number of Chinese citizens who told him that this is the kind of incident that would lead to a person being “taken off to the camps” in China.  Angering CCP officials is simply not tolerated.  

Adelina Zhang would later release a video (which appears to be carefully scripted) in which she accused Kavanagh of racism that triggered the argument; a tactic which communists around the world have learned to use whenever their bad behavior is exposed.  One might wonder what the CCP group was really doing there and why they were so insistent that they not be identified on camera?    

Sadly, the UK is not quite as free as Kavanagh might have believed.  London Police arrived and also threatened him, asserting that he could not publish his footage to YouTube (he absolutely legally can), and now the piano at St Pancrase Station is cordoned off from the public by London officials.  The event was not only a lesson in the communist authoritarian mindset in China, but also a lesson in how much this mindset has spread into parts of the west like a cancer.       

By Alexandra Muller, Bloomberg Capital Markets Watch reporter

Porsche AG’s celebrated market debut in September 2022 was built on investor enthusiasm for rival Ferrari NV’s success. That didn’t last long.

The German company’s shares have dropped 37% since their peak last May and are now languishing 8% below their listing price, taking the carmaker’s market value closer to parity with that of its former parent Volkswagen AG. That’s a far cry from a gap that once stood at €40 billion ($43.6 billion).

Investor sentiment has been deteriorating since Porsche reported first-half sales that missed estimates in July, raising concerns about automotive pricing, while a call last week with analysts failed to reassure. Porsche’s share price has been dragged lower by a downturn in China — for long Porsche’s biggest market — and production snags that have hit the rollout of key models, including the electric version of its top-selling Macan SUV.

“With the IPO, Porsche was positioned as a luxury goods investment case, very different from mass or premium original equipment manufacturers,” said Daniel Schwarz, auto analyst at Stifel. However, he said the main characteristics of luxury goods companies are high profitability, resilience and pricing power, and Porsche stock has suffered from declining profitability and falling sales in China.

Soon after the IPO, Porsche’s shares were trading at a ratio of about 20 times forward earnings per share, close to the level of luxury brands such as LVMH, even though some distance from Ferrari’s 40-times multiple. Since then, they have slid back to 13 times.

In contrast to the German automaker, “Ferrari is fully accepted as a luxury goods company,” Schwarz said. “Production is sold out for two years, the average selling price is rising fast and residual values of pre-owned Ferraris are very high.”

The Porsche IPO in September 2022 initially revived a market for new listings that had been largely shut for most of the year, with companies shying away from flotations at that time because of the European energy crisis, rising interest rates and record inflation. Despite a strong start, it has now joined other companies trading below their IPO prices, including Thyssenkrupp Nucera and Cab Payments Holdings Plc.

Most analysts are still positive on Porsche stock, however, with 12 buy ratings, 13 holds and only one sell, according to data tracked by Bloomberg. That’s even as the average target price has fallen to a level now just shy of €100 compared with more than €120 in August. That still implies potential for the stock to gain more than 30%.

After it appeared that Russia was flooding the world with its oil exports, things reversed sharply in recent weeks when Russia’s seaborne crude shipments fell to the lowest in almost two months, undermined by adverse weather and a Ukrainian drone strike that briefly halted flows from a key Baltic export terminal.

According to tanker-tracking data monitored by Bloomberg, about 3.36 million barrels a day of crude were shipped from Russian ports in the four weeks to Jan. 21, a drop of 50,000 barrels/day from the revised figure for the period to Jan. 14. The more volatile weekly average fell by 340,000 barrels a day to a seven-week low of 3.02 million, the lowest since early December. 

Exports were hit by continuing bad weather at some ports and a Ukrainian drone strike on the condensate processing facility adjacent to the Ust-Luga crude export terminal, which  interrupted loading on Sunday, pushing one shipment from the week ending Jan. 21 into the following week.

As Bloomberg notes, continued port maintenance and more poor weather may depress shipments again this week, while the drone attack has opened up a new front in Moscow’s war on Ukraine that highlights the vulnerability of oil exports from Russia’s western ports (even if port use has resumed).

While Russia has said it will cut oil exports by 500,000 barrels a day below the May-June average during the first quarter, after several other members of the OPEC+ group agreed to make further output curbs, it now appears that Moscow will actually be forced to do so even if it did not actually plan it. The Russian cut will be shared between crude shipments, which will be reduced by 300,000 barrels a day, and refined products. The four-week average crude measure was about 220,000 barrels a day below the May-June level, so it’s one snowstorm away from catching down to the quota. 

Meanwhile, all Russian crude destined for Asian buyers from western ports continues to pass through the Red Sea, despite attacks on merchant vessels from Yemen-based Houthi rebels. As reported previously, the militants have assured Russia and China that the group is “ready to ensure the safe passage of their ships in the Red Sea.”

Ironically, the only oil tanker reported to have been struck off Yemen was carrying Russian crude. The Sai Baba, carrying a cargo of Russian Urals, was hit by a drone off Yemen on Dec. 23, according to a post by the US Central Command.

Russia still appears to be struggling to place cargoes of its Sokol crude. Seventeen cargoes, totaling almost 12 million barrels, are sitting on tankers that appear to be going nowhere. Another two cargoes are on shuttle tankers anchored off the South Korean port of Yeosu, where they are typically transferred to other vessels for onward delivery to India.

As usual, the biggest customer of Russia remains Asia, mostly China and India. Observed shipments to Russia’s Asian customers, including those showing no final destination, edged above 3 million barrels a day in the four weeks to Jan. 21. Flows increased to 3.03 million barrels a day from a revised 2.98 million in the period to Jan. 14, reaching their highest since July.

• About 1.19 million barrels a day of crude was loaded onto tankers heading to China in the four weeks to Jan. 21. China’s seaborne imports are boosted by about 800,000 barrels a day of crude delivered directly from Russia by pipeline, either directly, or via Kazakhstan.
• Flows on ships signaling destinations in India averaged about 990,000 barrels a day in the four weeks to Jan. 21.

Meanwhile, Russia’s seaborne crude exports to European countries have collapsed since Moscow’s troops invaded Ukraine in February 2022. A market that consumed about 1.5 million barrels a day of short-haul seaborne crude, coming from export terminals in the Baltic, Black Sea and Arctic has been lost almost completely, to be replaced by long-haul destinations in Asia that are much more costly and time-consuming to serve.

Combined flows to Turkey and Bulgaria, Russia’s only two remaining buyers close to its western ports, fell to about 330,000 barrels a day in the four weeks to Jan. 21, tanker-tracking data show. That’s down from about 430,000 barrels a day in the period to Jan. 14 and the lowest since September.

In total, the gross value of Russia’s crude exports fell to a five-week low of $1.38 billion in the seven days to Jan. 21 from $1.52 billion the previous week. The four-week average income also slipped, down by $25 million to $1.52 billion a week.