China Is Driving the Demand Recovery

September 28, 2020 11:24 AM
Chinese data is raising demand hopes
Chinese industrial production and retail sales are up
What will Oct. Henry Hub futures do on their final trading day?
The Energy Report

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The Phil Flynn Energy Report 

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Oil prices are creeping back up on hopes for a relief package. Heavy traffic and industrial data out of China, are raising demand hopes. With the tightening U.S. oil supply, it’s clear that the OPEC+ cuts have been significant yet concerns of how to deal with the return of Libyan oil on the market are weighing. Covid-19 vaccine hopes are again rising, offsetting somewhat a surge of new coronavirus infection concerns.

The mood of the market is rising as House Speaker Nancy Pelosi on Sunday said another coronavirus stimulus plan is possible. The Democrats have cut their demands by about $1 trillion, but above what the Republicans want to spend. Still, with polls showing that voters are upset about the lack of a relief bill, the odds increase that they might get something done.

Reports show that Chinese road traffic has exceeded 2019 levels making China the global driver for oil demand growth. Reuters reported that China's industrial output accelerated the most in 8months in August, while retail sales grew for the first time this year, suggesting the economic recovery is gathering pace as demand starts to improve more broadly from the coronavirus crisis.

Natural gas rocked back as storms and weather caused exciting scenarios. Andrew Weissman of EBW Analytics writes, "October and November contracts were crushed early last week, due to disruption in LNG cargo loading caused by TS Beta which forced steep reductions in feedgas flows at Sabine Pass and Freeport, and very mild weather—pushing prices at Henry Hub to just $1.335. The October contract then rebounded sharply after feedgas flows started to recover, and posted further gains after EIA reported a much smaller-than-expected 66 billion cubic feet injection and cash prices rebounded to $1.935—only to crash Friday again when October options expired. Price action on Monday, when October expires, is uncertain. While cash prices in October are likely to average at least 50 cents above Friday's close, downward pressure is still likely.”

With demand even near seasonal lows, weighing  on cash  prices, the November Henry Hub contract could remain under pressure early this week. As the week progresses, though, demand is likely to increase. With cold weather expected a week from now, November could rebound sharply.

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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.