Starting to Think About Opening Day

April 17, 2020 08:17 AM
Stocks are starting to rock
May crude oil is up for delivery as OPEC+ cuts have yet to start
Natural gas got a blast on reduced production and a cold blast
The Energy Report

The Energy Report


The Phil Flynn Energy Report 

Opening Up America! Again!

Car, no traveling far. Staying at our home, but not without a star. Free. Only want to be free. Can't huddle close. Hang on to a dream. Parked the boats and parked the planes. They're opening America. Never looking back again. They're opening America. Work, don't it seem so far away. Oh, we're traveling light today. In the eye of the storm In the eye of the storm.  To everyone around the world. They're opening America. Every time that flag's unfurled. They're opening America. Got a dream to take them there. They're opening to America. Got a dream they've come to share! They're opening  America! They're opening America! They're opening to America. They're opening America. They're opening America. today! My country 'tis of thee. Today! Sweet land of liberty. Today! Of thee I sing. Today! Of thee I sing again!

Stocks are starting to rock as a Trump Administration plan to begin re-opening the U.S. is providing us some hope that the worst of the storm is behind us. We know that there will be tough days ahead, but we can start pricing in the great American comeback. Fox News reports that the plan calls for 3 phases to re-opening the country, based on the severity of the coronavirus outbreak in each individual state or region. "We can begin the next front in our war, which we are calling 'Opening Up America Again,' " Trump said during a press briefing at the White House. "To preserve the health of Americans, we must preserve the health of our economy.”

Not only is the stock market optimistic about the plan but also on reports of drugs that are having positive results against this virus. The STAT website reported that, "A Chicago hospital treating severe Covid-19 patients with Gilead Science antiviral medicine Remdesivir in a closely watched clinical trial, is seeing rapid recoveries in fever and respiratory symptoms, with nearly all patients discharged in less than a week, STAT has learned. Remdesivir was one of the first medicines identified as having the potential to impact SARS-CoV-2, the novel coronavirus that causes Covid-19, in lab tests. The entire world has been waiting for results from Gilead's clinical trials, and positive results would likely lead to fast approvals by the Food and Drug Administration and other regulatory agencies. If safe and effective, it could become the first approved treatment against the disease. The University of Chicago Medicine recruited 125 people with Covid-19 into Gilead's two Phase 3 clinical trials. Of those people, 113 had severe disease. All the patients have been treated with daily infusions of Remdesivir.

Gilead has been more cautious about the reports.

Yet despite this great news, it’s not coming fast enough for the May crude futures contract. May crude oil is up for delivery as OPEC+ cuts have yet to start, and production drops are not coming fast enough with a glut of oil. However, if you look down the curve, prices are looking better as the prospect of the tremendous American reopening is making longer-term outlook for oil much more supportive.

What is also supportive is a joint statement from Russia and Saudi Arabia that they are ready to do more to help stabilize the global oil markets. Bloomberg News reported, "Saudi Arabia and Russia signaled they may be open to further output cuts after the latest OPEC+ deal to curb global oil supplies failed to stem crude's downward spiral. The two nations will "continue to closely monitor the oil market and are prepared to take further measures jointly with OPEC+ and other producers if these are deemed necessary," Russian Energy Minister Alexander Novak and his Saudi counterpart Prince Abdulaziz bin Salman said in a joint statement published after a phone call.”

We can also talk about more reports of U.S. oil companies shutting down wells and production. Conoco Philips is announcing, “further capital, operating cost and share repurchase reductions of $3 billion. We also announced our intention to defer production where we have a compelling economic reason to do so. These actions reflect our view that near-term oil prices will remain weak, largely due to demand impacts from Covid-19 and continued oil oversupply. We are well-positioned with flexibility to take actions that we believe maintain our relative competitive advantages, as well as our ability to resume programs depending on the timing and path of a recovery.” An additional reduction in 2020 operating plan capital expenditures of $1.6 billion, bringing the current estimate to $4.3 billion. Including our previously announced reduction of $0.7 billion, this represents a total reduction in operating plan capital expenditures of $2.3 billion, or approximately 35 percent, compared to the 2020 announced guidance. These reductions are sourced from across our global portfolio, primarily focused on Lower 48, Alaska and Canada areas where we have the highest levels of flexibility. Reduction in operating costs of approximately $0.6 billion, representing roughly 10% of the initial 2020 guidance. This brings the current estimate to $5.3 billion. These reductions were sourced from lease operating expenses, general and administrative costs and foreign exchange impacts. The company's share repurchase program has been suspended.”

Natural gas got a blast on reduced production and a cold blast. The EIA says that working gas in storage was 2,097 billion cubic feet (BCF) as of Friday, April 10, 2020, according to EIA estimates. This represents a net increase of 73 BCF from the previous week. Stocks were 876 BCF higher than last year at this time and 370 BCF above the 5-year average of 1,727 BCF. At 2,097 BCF, total working gas is within the 5-year historical range.

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About the Author

Phil Flynn is a senior energy analyst at The PRICE Futures Group and a Fox Business Network contributor. Phil is one of the world's leading market analysts, providing individual investors, professional traders, and institutions with up-to-the-minute investment and risk management insight into global petroleum, gasoline, and energy markets.