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
The Wall Street Journal reported that, “Most American[oil] companies will have to give priority to paying off debts over boosting production in the wake of the pandemic, analysts say. Even with oil at $50, it would take the 20 largest U.S. shale companies 3.4 years on average to bring debt levels down to healthy levels relative to their overall capitalization, according to consulting firm Wood Mackenzie. In the meantime, we are seeing power and electricity prices spike in Japan and Europe. Strong demand and erratic plans to reduce carbon have left countries struggling to keep the lights on! What is this? California?
Oil prices are still in an uptrend. We expect that the breakout in oil is signaling a new day in the oil price comeback. The Wall Street Journal says that, “another factor driving bullish sentiment: busier traffic patterns in large U.S. cities. Congestion during rush hour in December rose in 27 of the 40 cities tracked by analysts at Tudor, Pickering, Holt & Co. Gains were led by demand centers in New York, Chicago, and Houston.”
Global cash cargoes are tight and China’s demand is already exceeding pre covid levels. On top of that, we should see US crude supply fall this week in the inventory reports. Oil bears that were betting that OPEC Plus could not reduce supply or that Covid would keep demand depressed forever, are wrong and must cover. Another case where low prices miraculously cure low prices and for oil when they went below zero, that was as low as they ever got.
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