Oil Futures in a Tight Trading Range

September 25, 2020 07:45 AM
Jump in Covid-19 cases expected to damper demand expectations
Refiners' next move
Prediction for an October arctic blast
Energy Report

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The Phil Flynn Energy Report 

Can’t Shake It

Oil prices can’t shake the virus. Reports that U.S. Covid-19 cases jumped over 45,000 in one day in the U.S., and deaths reached 900 turned slightly optimistic market sentiment into a more negative mood. In the U.K., they’re reporting an average of 9,600 new cases a day. In the most recent week, the U.K. said they had an estimated 103,600 people with the virus. The reports are damaging not only growth expectations but also the demand expectations for oil.

Still, oil is hanging in a tight trading range. The continuing tightening of U.S. oil investors, especially gasoline, should start raising some eyebrows. Simultaneously, one could no doubt argue that we have a glut of distillate, as, for gasoline, the supply is just 1% above the 5-year average and looks to fall below average in the coming weeks. That's reducing gasoline demand once again.

So what's a refiner to do? Should they ramp up gasoline production if they fear demand might get locked down by the virus. Or do they risk a gas price squeeze  and a spike in gasoline and RBOB prices. I think they'll play it cautious and that means they'll risk a price spike.  

Natural gas is popping. Not only do we have cooling demand, but we also have heating demand and the possibility that old man winter will start to rear his ugly head in October. Accuweather is calling for an arctic blast in October for a big part of the country, so get those jackets out and ride the natural gas. Reuters reported that U.S. natural gas futures jumped 5% on Thursday as output continues to slide while liquefied natural gas exports rise. That price increase came ahead of a report expected to show a near-normal storage build last week. Analysts said U.S. utilities injected 78 billion cubic feet (bcf) of gas into storage in the week ended September 18. That compares with an increase of 97 bcf during the same week last year and a 5-year (2015-19) average build of 80 bcf. If correct, the increase would bring stockpiles to 3.692 trillion cubic feet (tcf), 12.8% above the 5-year average.

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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.