Viral Cases Climb as Supplies Decrease
June 25th, 2020
The energy market is juggling information about declining supplies and rising COVID-19 cases. Traders are trying to decipher how do these issues will play out and the outlook for energy supply and demand.
Mercuria’s Chief Executive, Marco Dunand, sees the oil market in deficit by July with stock draws reaching about 2 million bpd as the world economy rebounds after coronavirus lockdowns.
IMF Downgrades Economic Outlook
The International Monetary Fund downgraded its outlook for the world economy. IMF lowered its world GDP forecast down to a contraction of 4.9% for 2020. It had forecast a contraction of 3% in April for 2020. IMF also lowered its global GDP growth forecast for 2021 to a rise of 5.4%, down 0.4% from its April forecast. IMF said the second quarter of 2020 will be the worst before rebounding. The outlook from IMF helped push energy prices lower during the selloff that occurred yesterday.
The government’s June 24 inventory report showed crude oil stocks grew by 1.442 million barrels and crude stocks in Cushing, Oklahoma were down 991,000 barrels. Gasoline stocks were down 1.67 million barrels, a bit less than expectations. Distillate stocks were up 250,000 barrels. Two million barrels of crude oil were sent to the Strategic Petroleum Reserve. The report says U.S. crude oil production is up 500,000 barrels. Compared to last year, U.S. crude production it is still down by 1.10 million barrels.
Total crude stocks sit at 540.722 million barrels, which is 71.146 million more barrels than last year at this time. Gasoline stocks are at 255.322 million barrels, which is 23.225 million more barrels that last year at this time. Total distillate stocks are at 174.720 million barrel, an increase of 49.340 million from this time last year. U.S. supplies are abundant. Demand needs to increase to whittle these volumes down. The surge we saw when the lockdowns were lifted got the market ahead of itself. We are now seeing a correction of the optimism. The fundamental fact remains that there is still a lot of inventory.
Analysts and trade sources anticipate China will cut its crude imports in the third quarter, after record purchases in recent months. The higher oil prices will impact demand and refiners worry about a second virus outbreak. China imported a record 11.3 million bpd of crude oil in May, with volumes set to rise in June and July, as cheap crude purchase during an oil price slump in April arrives in the country. China is expected to receive around 800,000 to 1.3 million bpd less crude from abroad in August and September that it did in May.
Propane produced a near average build for this time of year with supplies up 2.364 million barrels. The Gulf Coast had stocks up 1.606 million barrels and the Midwest had stocks up 645,000 barrels. Total propane stocks are at 71.331 million barrels, which is in line with 2019’s stock of 70.905 million barrels at this time of the year.