The Phil Flynn Energy Report
Oil Indicator Optimism
Oil prices hit a new 9-month high as Asian oil demand explodes, and the Fed says it still has our back. The Energy Information Administration (EIA) also helped by showing a crude draw of 3.1 million barrels and a hefty 793-million-barrel jump in U.S. oil exports, along with a significant 1.1 million barrel per day (bpd) drop in oil imports.
The recent crude oil moves seemed to foreshadow what the Fed said yesterday about the U.S. economy and jobs market. The economic outlook and jobs are improving, leading to higher energy prices. The Fed was even optimistic about U.S. growth, raising its 2021 real GDP forecast to 4.2% from 4.0%. They also markedly improved their outlook for the unemployment rate and lowered their forecast from 6.7% down from a previous 7.6% projection in September.
The crude oil market is moving to post-pandemic highs because we’re starting to price in a strong rebound in the U.S. economy, yet it’s China and India that are tightening supplies in Asia. Record-breaking refinery runs in Chinese and Indian refineries show that global demand will recover much faster than many had predicted. By the way, a lot of the oil that China and India are refining is coming from the U.S. shale patch.
U.S gasoline demand has ticked back up. The weekly implied market jumped 5% to 7.98 million bpd, yet it was 15% behind year-ago levels. The 4-week moving average of implied demand fell for a 5th straight week and was the lowest since the week ended June 19 after falling 1% to 7.92 million bpd.
Distillate fuel inventories increased by 0.2 million barrels last week and are about 11% above the 5-year average for this time of year. S&P Global Platts says that refinery net crude inputs fell 250,000 bpd to 14.18 million bpd amid a 0.8% pullback in refinery utilization to 79.1% of total capacity. Crude inputs were nearly 16% behind the 5-year average, but despite the WoW decline, they were still generally trending higher, and the 4-week moving average edged up to 14.22 million bpd, a 15-week high.
Trends of improving runs and demand are reasons behind product prices looking so cheap. The complex looks strong and confirms what we’ve been saying. The U.S. is exporting cleaner air. While there’s a big focus on reducing greenhouse gas emissions, the best way to do so quickly is to replace coal plants with natural gas. Of course, to do that you need natural gas, and right now many countries don’t have enough to meet their own needs! Well, the U.S. frackers are coming to the rescue.
The EIA reported that Liquified Natural Gas (LNG) exports from the U.S. are at a record high. The EIA said the following:
"During the summer of 2020, monthly exports of LNG from the United States were the lowest in 26 months but have since increased. In November, estimated LNG exports surpassed the previous record set in January 2020. In the December 2020 Short-Term Energy Outlook, the EIA estimated that November U.S. LNG exports reached 9.4 billion cubic feet per day (Bcf/d), which was 93% of peak LNG export capacity utilization.
Several factors contributed to the increase in U.S. LNG exports in recent months. International natural gas and LNG prices increased in Asia and Europe because global natural gas demand increased after COVID-19 restrictions were eased and global LNG supply fell due to unplanned outages at LNG export facilities in Australia, Malaysia, Qatar, Norway, Nigeria, and Trinidad and Tobago. In addition, 2.7 Bcf/d of new U.S. LNG export capacity was added in 2020, and several U.S. LNG terminals affected by hurricanes and annual maintenance have resumed LNG shipments.”
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