The Phil Flynn Energy Report
Shaking It Off
Oil prices are shaking off bearish American Petroleum Institute (API) data and instead focusing on record-breaking Chinese refinery runs. Again we have the promise of a Covid-19 relief stimulus package so Congress can go home and enjoy the holiday.
Instead of correcting last week’s crude increase as many expected, the API instead reported that the oil supply rose by 1.973 million barrels. That was even as the Cushing oil supply fell by 165,000 barrels. The API also said that the distillate supply rose by a much more extensive than expected 4.762 million barrels. Gasoline increased by 828,000 barrels, as well. Still, even though the data was bearish, the market was only slightly impacted. It’s the polar opposite of last summer when we received bullish data, and the prices still fell. Now we hold or rally on so-called bearish data.
Part of the reason oil held its rally is that Asian oil demand is surging, and supplies are tightening. Bloomberg News pointed out that China's oil refiners processed a record 14.26 million barrel per day (bpd) in November (up to 55,000 bpd YoY), keeping refinery runs above the 14 million bpd mark for the 6th consecutive month. India's oil demand is also on the rise, and refiners are ramping up. S&P Global Platts reports India's appetite for oil should emerge from the red and post positive growth in 2021, a year that will likely witness critical consolidation and mergers, as well as a strategic push for refiners to reduce their carbon footprint.
In November, New Delhi announced a $35 billion package to stimulate the economy by boosting jobs, consumer demand, manufacturing, agriculture, and exports. India's demand for oil products rose 0.4% MoM in November to 17.83 million mt, or 4.7 million bpd, the latest provisional data from the Petroleum Planning and Analysis Cell showed. Diesel demand rose 5.2% on the month, gasoline inched 0.4% higher, naphtha demand increased 3.3%, and jet fuel rose 4.8% in November.
India's refinery runs hovered in the 4.3 million bpd range over June-October. The sharp increase in October demand and the conclusion of fall maintenance season helped boost November runs by an estimated 400,000 bpd per month.
Oil traders: don’t fight the trend. As we said, the worst is over for crude, and the outlook looks very tight. While U.S. demand lags, more stimulus will boost demand. Senate Majority Leader Mitch McConnell said Tuesday that the Senate would not leave Washington for the holidays until a Covid-19 aid package is passed: "We're not leaving, I assure you. We're not leaving until we finish this package." That statement, along with the market's knowledge that politicians hate not being home for the holidays, makes it likely a deal will pass.
Natural gas prices are pulling back as winter has been underwhelming. Andrew Weissman of EBW Analytics writes that winter supply adequacy concerns remain improbable at this point, particularly after considering Canadian storage surpluses and elevated imports. Even if late December weather turns colder, more measured gains are likely. Yet, he still holds his "strongly bullish outlook for the coming injection season” and has turned even more optimistic on recent strength in international gas demand, boosting domestic liquified natural gas (LNG) export prospects for summer 2021 and including emerging deficits in Europe. Domestic natural gas prices may have to rise high enough to shut in LNG exports to conserve supplies for heating demand—implying that steep price gains may be required over the next 8 to 10 months to balance the market.
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