The Phil Flynn Energy Report
The End of the Tunnel
More news on Covid-19 vaccines is raising oil demand prospects in the short term and the longer-term has oil trading at a 3-month high, and the best is yet to come. Global supplies have tightened, oil production has fallen, and more robust economic data and better than expected demand in Asia are starting to bolster prices. OPEC meets on November 30 and will try to decide whether their extension of production cuts will be extended for 3 or 6 months. With a vaccine on the horizon, the dynamics for oil look a lot more bullish.
According to the Wall Street Journal, "AstraZeneca PLC [AZN 2.35%] and the University of Oxford said their Covid-19 vaccine was as much as 90% effective in preventing infections without serious side effects in large clinical trials, boosting hopes that a third Western-developed shot could be authorized for use before the end of the year. The partners said Monday that there were no serious safety events related to the vaccine and that it was well tolerated across different dosing regimens. Its efficacy ranged from 62% to 90% depending on the dosage given, with an average of 70%, they said. The results bode well for the near-term availability of the third vaccine to battle Covid-19 after a shot created by Moderna Inc. and one made jointly by Pfizer Inc. [PFE 1.41%] and Germany's BioNTech SE [BNTX 9.63%] were found to be more than 90% effective in their late-stage trials. Pfizer and BioNTech last week said they had asked the U.S. Food and Drug Administration to permit the use of their vaccine.”
Abroad, China and Russia have both deployed their vaccines at home and overseas. The Wall Street Journal reports that “Chinese authorities have inoculated nearly one million Chinese people with a vaccine from Sinopharm, though the state company has yet to provide solid clinical evidence of its efficacy. According to the Journal, “Russia has said its own homegrown vaccine has an efficacy rate of above 90%.”
This news is significant. Oil demand is already rising in China and may start rising in other parts of the world as the expectations for returning to normalcy start to get priced in. We will see a supply deficit in the second half of the year, and the curve is starting to price that in, as well.
S&P Global Platts is reporting that “China's gasoline exports hit a fresh record high of 1.91 million metric tons (mt) in October, surging 63.9% on the month, data from the General Administration of Customs released on late November 23 showed.” This was marginally higher from the last record of 1.90 million mt registered in April.
It comes at a time when domestic supply was in a surplus state, prompting refineries to look toward the overseas market. Gasoline demand in the domestic market has started to weigh down after China’s National Day holiday in early October. As a result, state refiners have to sell more in the overseas market even though the domestic market offered better margins, according to market sources. On the other hand, the gasoil exports also recovered to a 6-month high of 2.17 million mt, or a growth of 81.7% from 1.19 million mt in September. It also marked the third consecutive monthly rise since July. With the jet fuel demand remaining weak worldwide, most refineries continue to cut the jet fuel output by mixing more jet fuel yields into the production of gasoil, thus leaving more gasoil to be exported. This was echoed by PetroChina's officials earlier in November, with some of the company's refineries increasing gasoil exports from October.
Natural gas is looking like it’s trying to find a bottom. Look to put on your winter calls.
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