Oil Prices Take a Hit on Covid-19 Fears

November 13, 2020 12:52 PM
Covid-19 restrictions in European countries will likely allow their economies to reopen in time for Christmas
OPEC members fear losing market share to U.S. shale producers
U.S. refinery runs are still weak
The Energy Report

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The Phil Flynn Energy Report 

We'll Be Home For Christmas

We'll stay home for Christmas, Democrats agree, Covid-19 grows, more stores will close, no presents under the tree. Transgressors, they will find you. So says the new regime. See family at Christmas but only in your dreams.

Ok, it might be too early for my Christmas songs parody yet again; oil prices take a hit on Covid-19 fears. Shutdown calls in states like Illinois and New York threaten Thanksgiving, but some are saying it could go on through Christmas. Oh, sure, a surprise increase in crude oil supply didn’t help, but product draws and low refinery runs send mixed signals about future demand. Yet leaders like Chicago Mayor Lori Lightfoot are ready to crack down on Covid-19 gatherings. She fears that we could see 1,000 more Chicagoans die by the end of the year. She wants us to stay home on Thanksgiving to avoid a super-spreader event.

In fact, if you want to have a real Christmas with your family, book cheap airfares to Europe. Marketwatch reports that, "As the U.S. struggles with record levels of cases and hospitalizations in a resurgence of the deadly coronavirus, in the old world of Europe, countries have been fending off round 2 of Covid-19 for weeks.” According to David Mackie, an economist at JPMorgan, the lockdowns and restrictions imposed in the U.K., Germany, Italy, and elsewhere will likely allow those economies to reopen in time for Christmas. The bank judges that those timetables, for example, map out the U.K.'s second-wave lockdown ending by December 2 and Germany's by November 30 are likely being observed. That said, more modest restrictions could linger after the expirations, and countries such as Spain are waiting to see if a lockdown will be needed after current curbs expire.

Of course wearing a mask on a long trip to Europe might be a challenge for grandma. Yet Covid-19 fears overshadowed OPEC signals that they’re possibly going to extend production cuts for 3 to 9 months and try to work out an additional amount. Some OPEC members' resistance to that is fear because they fear losing market share to U.S. shale producers. Well, based on the most recent EIA report, they should have little to worry about. U.S. production is still at 10.5 million barrels a day (bpd), and while we will see some improvement, it will take years for U.S. prices to get back to their 13 million bpd peak.

U.S. refinery runs are still weak, partly due to storms, bad margins, and seasonal maintenance. Yet tightened product supply should improve margins. Still, we think you should start hedging for a potential price spike this winter. Natural gas is included in that call. 

Don’t miss out on my wildly popular trade levels on all major markets, as well as special subscriber-only updates. Call me at 888-264-5665 or email me at pflynn@pricegroup.com.

 

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.