Energy Markets Bounce Back
February 5th, 2020
The energy markets are up this morning with a pretty strong bounce. The indications are that markets are reacting to news that advances being made about a vaccine being produced. Now reports have come out and said this is a bit overdone, but I guess it just goes to show you how the market was overdone on the downside and any good news prompts a bounce. We will have to see how this shakes out as the day wears on. The bulls need a rally and they have more work to do to change the trend.
The market is also being supported by hope that OPEC+ talks going on now and hopes that they will cut more production.
The API put out their inventory update yesterday and they said that crude oil inventories were up 4.2 million barrels. The estimates for today’s DOE number is for stocks to be up 2.8 million barrels. Cushing stocks were up 957,000. Gasoline stocks on the API report were called up 2.0 million barrels and the outlook for today is for gas to be up 2.1 million barrels. Distillates in the API report were down 1.8 million barrels and the expectation for today is for stocks to be down 14,000 barrels.
Crude oil and refined fuel product prices closed down yesterday at or near 1-year lows as crude oil entered an official bear market yesterday dropping by more than 20% since January 7th.
Many experts think oil prices will remain near $50 until there are signs that China will see some return to normal oil consumption. China is the largest is the largest importer of oil in the world and the second largest economy next to the US. Any extended cuts delivered by OPEC+ will likely yield rallies that will get sold into.
Valero Energy Corp’s Chief Executive, Joseph Gorder, said the coronavirus outbreak is a “black swan event” whose economic impacts are not yet clear, adding that the real questions are the length and severity of the outbreak.
ConocoPhillips Chief Executive, Ryan Lance, said it expects demand growth to slow. It expects demand growth in 2020 to be lower by 100,000 to 200,000 bpd from its earlier projection of 1 million bpd. He expects a buildup in storage in the US and in non-OPEC countries, which will put some pressure n oil prices.
Goldman Sachs said 2020 global growth will take a modest hit from the outbreak of the coronavirus, assuming an aggressive response from authorities in China and elsewhere to bring the rate of new infections down sharply by the end of the first quarter. It estimated that annual average global GDP
growth will fall by 0.1 to 0.2%. Goldman Sachs also stated that the global oil market expects the coronavirus outbreak to create a large demand shock and keep volatility in spot prices elevated. The market is pricing in a 500,000-bpd average year-on-year loss in oil demand for 2020. The bank said
the oil market was pricing in at least a -0.44% hit on global GDP from the coronavirus outbreak.
Russia’s Energy Minister, Alexander Novak, said he could not say for sure if it was time to tighten oil output cuts amid an outbreak of a new coronavirus and a fall in oil prices. He said OPEC and its allies might convene before the meeting which is currently scheduled for early March.