The Phil Flynn Energy Report
The Road To Normal
Massive amounts of Chinese stimulus into the system and talk that Saudi Arabia is mulling a temporary one million barrel a day production cut is giving hope to global markets. China pumped in 22 billion of liquidity into the markets and are ready to do more if the market conditions warrant it. China’s stock market got hammered as expected on the re-opening, but U.S. stocks and oil prices are rising.
Reportedly China is considering lowering its projection for economic growth as the unprecedented quarantines of major cities will take its financial toll. Bloomberg News reports that in a coronavirus containment scenario -- with a severe but short-lived impact -- it could make China’s first-quarter gross domestic product growth down to 4.5% year-on-year, according to Bloomberg Economics. That would be the lowest quarterly figure since at least 1992. While there will still be challenges ahead, the worst may be over for global markets. Yet again, the unknown about this virus can keep us on edge and for oil as the demand destruction continues to mount.
Chinese oil demand alone has fallen by an estimated 20%, or 3 million barrels a day, and a number was so shocking it changed Russia’s mind about an emergency OPEC meeting. Bloomberg reports that potential dates for the conference as February 8-9 and Feb. 14-15, though for now the next regular meeting on March 5-6, remains on the schedule, Now the word that Saudi Arabia is potentially cutting output by 1 million barrels a day should help oil find a bottom.
Andy Weisman of EBW Analytics writes that, "With natural gas futures already at historic mid-winter lows, the rate at which prices eroded slowed last week—declining only modestly, despite another sizable week-over-week loss in projected demand. As of Sunday night, the weather forecast still calls for very mild weather for the next 10-12 days, with an increase in total gHDDs—to more normal levels—around February 13th. If this forecast holds, a near-term bottom could form for natural gas, with prices trying to push higher. Price-induced coal displacement may reach 5.6 Bcf/d this week—1.2 Bcf/d above December levels. Since many coal plants are needed to operate for reliability in mid-winter, however, further coal displacement potential may be limited.
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