Phil Flynn is writer of The Energy Report, a daily market commentary discussing oil, the Middle East, American government, economics, and their effects on the world's energies markets, as well as other commodity markets. Contact Mr. Flynn at (888) 264-5665
Oil Prices are giving up gains and turned lower after Apple will miss its second-quarter forecast for revenue. They pointed to supply issues for iPhones and lower sales in China as the coronavirus shut down factories and stores. They see a 4 billion drop from $67 billion in revenue to $63. This caused oil to fall because they are worried that this may be a case of an Apple-like warning a day may keep stock buyers away. They say that Apple may not fall from the tree, but is the warning by Apple really a reason to get bearish oil? Maybe for the short-term, but overall probably not.
Oil prices were in recovery mode in hopes that the Coronavirus might not be as deadly as previous viruses. Yet the reality is that companies are already hurting, putting a damper on energy demand, and we are starting to see how bad that might be.
On the backend, there will be pent-up demand for oil as companies like Apple have to kick it into high gear to get things back to normal. That should provide a supply boost. Besides, the market should not be that surprised by Apple, and they should not be surprised when other companies offer similar warnings. We might have to get ready for an apple a day like Walmart that had disappointing earnings.
Yet are these warnings in the rearview mirror? We already have priced in massive demand destruction in oil. In fact, in many cases, it is not even demand destruction per se, but oil demand delayed.
OPEC is still trying to finalize its production cut with Russia. Russia’s Alexander Novak says that Russia is still in talks with OPEC+.
On top of that, the civil war in Libya is still cutting oil exports. Reports today that there is a “Tripoli port coming under intense artillery bombardment from The Libyan National Army “LNA” forces. Reports say that shells are landing near densely populated areas of the old city and major oil company HQs.”
Interestingly, Bloomberg News reported that the sudden oil buying spree by China’s independent refiners had taken Asian traders by surprise. “After weeks of production cuts, cargo deferrals and cancellations because of the deepening impact of coronavirus on Chinese crude demand, companies including Shandong Shouguang Luqing Petrochemical Co., Shandong Huifeng Petroleum Chemical Co., and Sinochem Hongrun Petrochemical Co. have returned to the market in a big way.
They’re all non-state-owned refiners, known as teapots, from the eastern province of Shandong. Until recently, this corner of the industry appeared to be doing everything to avoid buying crude, including cutting processing rates.
Natural Gas gets a bounce on a cold blast. Buy PUTS.
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