The Phil Flynn Energy Report
Supply, Demand, and Covid-19
If you'd never heard of Covid-19, then a bullish stance on crude oil would be a given. Global oil inventories are falling like rocks, dropping 15 million barrels last week at a pace of 2 million barrels per day (bpd). The upcoming OPEC+ meeting, where the group will be talking about delaying a production cut while U.S. oil demand hits its highest level in over a year, would give a bullish stance on oil. Add to that an unseasonal uptick in gasoline demand to 9.572 million bpd and a large hurricane that could barrel right through production areas, into the heart of refinery row. Still, Covid-19 fears weigh despite the current bullish fundamentals.
The Energy Information Administration reported the following:
U.S. commercial crude oil inventories (excluding those in the Strategic Petroleum Reserve) decreased by 3.0 million barrels from the previous week. At 432.6 million barrels, U.S. crude oil inventories are about 6% below the [5]-year average for this time of year. Total motor gasoline inventories decreased by 2.2 million barrels last week and are about 3% below the [5]-year average for this time of year. Finished gasoline and blending components inventories both decreased last week. Distillate fuel inventories increased by 0.6 million barrels last week and are about 8% below the [5]-year average for this time of year. Propane/propylene inventories increased by 2.0 million barrels last week and are about 17% below the [5]-year average for this time of year. Total commercial petroleum inventories decreased by 4.8 million barrels last week.
The numbers, along with demand, were very supportive and tell a story that should see one of the tightest wintertime supply situations we’ve seen in years. Still, more talk of the Fed tapering is giving the U.S. Dollar a boost and adding to the selling.
James “Jim” Bullard, the President and CEO of the Federal Reserve Bank of St. Louis, said this morning that, “we are getting more inflation than we expected.” He downplayed the possibility that Covid-19 would cause a delay in tapering. That would suggest that Fed Chairman Jerome Powell would have to send a signal at Friday’s Jackson Hole Economic Symposium. Unless, of course, he dodges the question.
The Wall Street Journal reports:
European air travel is finally returning, thanks to a barrage of cheap tickets from discount carriers and the relatively smooth rollout of a continentwide vaccination-certification system.
Until just recently, U.S. and China domestic air-travel markets have been booming, with passengers taking advantage of what had been a fall in Covid-19 cases in both places. In the U.S., a robust vaccination drive also boosted traveler confidence.
Technical concerns that the market came back too quickly from the 7-day swoon is also worth noting. If oil holds the 100-day moving average of 6676, the price recovery should continue.
Natural gas production issues should support prices all winter.
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