Tropical Storm Henri Could Create Minor Gas Shortages
August 24, 2021
The energy market had a strong rebound in yesterday’s trading and took back the losses from the prior three trading days. There were a host of reasons given for the rebound, with the US dollar trading lower as the most prominent one. Also supporting the bounce was an oversold market that was down seven straight trading sessions and, after holding key support, triggered technical short covering. Now the market needs to rally up through key moving averages that are overhead to suggest that the market is in an uptrend and the rally up from support is a short-term bottom.
Tropical Storm Henri is expected to create some minor gasoline shortages amid higher US Atlantic Coast demand, low gasoline inventories, and planned refinery work.
The US Department of Energy said it would sell up to 20 million barrels of crude oil from the emergency oil reserve to comply with legislation passed in recent years. It said up to 8 million barrels will be offered from the Strategic Petroleum Reserve’s Bryan Mound, Big Hill, and West Hackberry sites, while 1 million barrels of crude will be offered from Bayou Choctaw. The sale complies with a 2015 law that called for the offering of 58 million barrels between 2018 and 2025. The SPR has more than enough crude to meet international supply agreements. The department said bids must be received by early August 31st, and it would award contracts no later than September 15th. The added supplies from the sale are expected to weigh on sour crude grades in the US Gulf Coast. Mars crude, the main sour crude sold in the US Gulf Coast market, is already at the lowest levels in about a month on oversupply and slow global demand.
Goldman Sachs remains committed to its call for $80 per barrel of crude oil. Goldman Sachs said oil is oversold and will recover as the demand impact of the delta virus variant proves transient. Goldman Sachs analysts said both oil futures and market times spreads sold off over the last three weeks as delta concerns darkened the outlook for demand. However, they stated that prices “have overshot time spreads to the downside, suggesting an oversold market.” Oil prices are expected to reach new highs this cycle, maintaining its fourth-quarter target of $80 per barrel.
RBC analysts stated that China’s oil demand destruction due to lockdowns is likely smaller than many believe. They stated that the physical market is holding up relatively well, despite additional OPEC+ supply this month. Also, while expectations are that demand estimates will be lowered, the fall may not be as deep as the current consensus.
Energy Aspects stated Europe’s diesel deficit is set to increase as refinery runs fall after the summer.
Tudor, Pickering & Holt said oil inventories outside the OECD are at an eight-year low. It said at 377 million barrels, tracked non-OECD crude inventories are at the lowest level in its 2015- 2021 data set, surpassing the previous low set in April 2021 of 379 million barrels.
The market has been concerned that the Fed would announce a tightening of its monetary policy soon. But the surge in COVID-19 cases and the negative impact this has had on the economy now has more traders thinking the Fed will maintain its accommodating policy.
The markets contain a ton of uncertainty, and this should keep the volatility very high, much like we have seen in the energy market the last few trading sessions.