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
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Crude oil prices are on the rise as cities in the Northeast start to reopen, and gas stations are getting full of drivers that need to fill their tanks, ipn some cases for the first time in over a month. Yet oil is also getting support from private forecasters that suggest that oil supply in the Cushing, Oklahoma delivery point continues to fall, alleviating fears that oil will trade negatively again. Genscape, the individual Cushing watcher, reported that storage at the Cushing, Oklahoma delivery point fell to 62,068,479 mb. That is down 4.430 million barrels from Tuesday, May 05.
At the same time there are more signs that crude supplies, contrary to the market’s greatest fears, are starting to tighten. Reuters reports that the, “oil futures market is pricing in tighter supplies due to OPEC-led production cuts and recovering demand as lock downs to contain the coronavirus outbreak are eased, suggesting a huge inventory buildup could slow and start to be drawn down.”
Brent crude futures for July are trading at the smallest discount to the contract six months in the future since March LCOc1-LCOc7. A price structure where oil for immediate delivery is cheaper is called contango. A narrowing contango usually points to supplies becoming more constrained. At the same time, the price of North Sea physical oil compared with dated Brent – the benchmark used to price most of the world’s cargoes – has recovered from historic discounts and is moving toward parity.
Oil is also getting support from signs that OPEC plus is serious about production cuts. Even Nigeria, one of OPEC laggards, is showing impressive production restraint. Reports say that Nigeria cut its output by 417,000 barrel per day and are in full compliance with their agreed-upon cuts.
At the same time, there are strong indications that oil demand is coming back much faster than some expected. Reuters reports, “China’s daily crude oil throughput rebounded in April from a 15-month low in March as refiners cranked up operations to meet renewed fuel demand after lock downs imposed to prevent the spread of the coronavirus outbreak were eased. The country processed a total of 53.85 million tonnes of crude oil last month, data from the National Bureau of Statistics (NBS) showed on Friday, equivalent to about 13.1 million barrels per day (bpd). That was some 11% higher than 11.78 million bpd in March.” They also reported that Chinese April crude runs 13.1 mln bpd, 11% higher on month though Jan-April refinery runs down 3.4% on yr -official data. April natural gas output +14% on yr; crude oil +0.9%.
The oil outlook is much more supportive. We may see a tight supply of gasoline. Refiners have taken a hit and are looking for relief from quickly switching to being forced to sell summer blends of gasoline. DTN reports that a group of 24 members of the U.S. House of Representatives is pushing the EPA to grant a Renewable Fuel Standard waiver request recently made by the governors of Texas, Louisiana, Oklahoma, Utah, and Wyoming. The representatives from those states said in a letter to EPA Administrator Andrew Wheeler on Monday that the refining industry cannot wait much longer for agency action. “The current, suppressed worldwide demand for motor fuels has placed the refining sector in a precarious economic situation that is only magnified by these federal regulations,” the lawmakers said in the letter. The letter was signed by Reps. Chip Roy, Pete Olson, John Curtis, Louie Gohmert, Clay Higgins, Liz Cheney, Van Taylor, Garret Graves, Ron Wright, Roger Williams, Kevin Brady, Brian Babin, Michael C. Burgess, Tom Cole, Markwayne Mullin, Michael Cloud, Rob Bishop, Lance Gooden, Will Hurd, Michael T. McCaul, Dan Crenshaw, Kevin Hern, Jodey C. Arrington, and Randy K. Weber.
Black gold is recovering and yellow gold is soaring! The physical demand for gold is soaring. Bloomberg News reported, “HSBC Holdings Plc lost around $200 million in one day in March because of disruptions to the gold market that caused prices to diverge dramatically in key trading hubs, according to a filing by the bank. The one-day loss was unusually large for a market in which the leading banks — which include HSBC and JPMorgan Chase & Co. — typically hope to make around $200 million in an entire year. It far exceeded the maximum loss anticipated by HSBC’s value-at-risk models.
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