The Phil Flynn Energy Report
Get Ahead Of It
Stocks and oil prices have mounted a rebound on hopes that the markets, the Fed and OPEC, can get ahead of the coronavirus virus called 2019-nCoV. Oil traders are taking statements out of OPEC to mean that the cartel, along with its co-conspirator Russia, will do what it takes to support prices. Right now, estimates are that demand destruction is about 200,000 barrels a day, yet that number may be low considering reports that the death toll from the virus is again rising and there is more restriction on travel in and out of China.
China is now reporting there are 5,974 cases in China, at least 132 deaths. China Premier Li Keqiang is saying that the virus is spreading and that the situation is “still complex”.
The Wall Street Journal reported that British Airways became the first global airline to cancel service to and from mainland China as the virus spread beyond Asia. Both the United States and Britain put out statements saying that people should avoid all non-essential travel to China. Beijing health officials say that the risks of coronavirus infection in the city are rising.
Still, even if the demand destruction is twice that the cartel plus one is saying, they can quickly reduce output by a similar amount. Yet the more barrels of demand that are lost, the harder it might be for OPEC to stay united and keep cutting.
The markets are also looking to the Fed to try to get ahead of the Coronavirus. The growing threat of a negative impact on the global economy will force the Fed to give their take on how they plan to respond to the risk. Already FED Fund Futures traders are signaling that they want the Fed to cut rates in September, yet the Fed may have to indicate a more aggressive plan.
The Bank in China is taking action by cutting interest rates for small companies in Hubei province.
There is some bullish news as well that is supporting prices. Turmoil in Libya has sharply reduced output and exports are on a path towards zero.
The API also reported a big crude draw of 4.27 million barrels. Products were mixed with gasoline being up 3.27 mb and distillates down 141,000.
Could we see the last blast of winter? While weather models have kept natural gas traders rangebound, early spring means that on Super Bowl Sunday, the Groundhog will predict an early spring. Forget the groundhog! Bret Walts meteorologist at Bamwx writes that, “Overall, forecast models have continued to be too cold in the extended range. This cold-bias has been going on for more than a month now and we would generally expect to continue to see data trend warmer over the next few days. We do not see good signals right now to support any extended cold and we favor warmer than normal temperatures for the Eastern US to continue into Mid-February. Some areas early next week in the SE US to Ohio Valley could get into the 60s and 70s for a nice taste of spring!”
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