The Phil Flynn Energy Report
Run Bull Run
Oil prices are stalling, taking a rest after the commodity's best bull run in 2 years. It’s been a story of OPEC cuts balancing the market and the sense of a new oil supercycle as an investment is being shut down due to a global green energy push. The Biden administration wants to lead the world in green energy, which in turn will make oil scarce and more expensive. Now add in the inflationary policies by the Fed and oil looks to be in a secular bull run.
OPEC is seeing better demand in the second half of the year. Market Watch reported the following:
"[OPEC] trimmed its forecast for a rebound in global oil demand in 2021. In its monthly report, OPEC said it expects oil demand to rise by 5.8 million barrels a day in 2021, down 100,000 barrels a day from its January forecast, to an average of 96.1 million barrels a day. OPEC said that demand fell by 9.7 million barrels a day in 2020 to an average of 90.3 million barrels a day, slightly lowering its estimate by 30,000 barrels a day. The cartel said its forecast for non-OPEC supply growth in 2021 was revised down by around 200,000 barrels a day to show a rise of 700,000 barrels a day, for an average of 63.3 million barrels a day.”
Still, that might not thwart price increases. U.S. supplies continue to fall. The Energy Information Administration (EIA) reported that U.S. commercial crude oil inventories fell by 6.6 million barrels from the previous week. At 469.0 million barrels, U.S. crude oil inventories are about 2% above the 5-year average for this time of year.
Total motor gasoline inventories increased by 4.3 million barrels last week and are about 0% below the 5-year average for this time of year. Finished gasoline and blending components inventories both increased last week. Distillate fuel inventories decreased by 1.7 million barrels last week and are about 7% above the 5-year average for this time of year. Propane/propylene inventories decreased by 4.5 million barrels last week and are about 9% below the 5-year average for this time of year.
Total commercial petroleum inventories decreased by 11.2 million barrels last week and are now only 20 million barrels above last year’s levels. This tightening of supply means that if demand improves soon, we could be undersupplied.
Asian spot markets have weakened a bit, slowing the recent buying frenzy. In China, it’s the eve of the spring festival, which may explain some of the weaknesses. Still, China is on track to import a record amount of oil.
India's oil demand growth is surging, and it shouldn’t stop. India will be protected from slowing its oil demand from the Paris Climate Accord agreement. They may also be able to score some cash from the “developing nation” fund so they can invest to reduce pollution in the more distant future.
Overall, U.S. demand is coming back. The EIA says that total products supplied over the last 4-week period averaged 19.5 million barrels per day (bpd), down by 5.8% from the same period last year. Over the past 4 weeks, motor gasoline product supplied averaged 7.9 million bpd, down by 10.1% from the same period last year. Distillate fuel product supplied averaged 4.2 million barrels a day over the past 4 weeks, up by 1.9% from the same period last year. Jet fuel product supplied was down 33.7% compared with the same 4-week period last year.
Natural gas is on its way back up! Winter isn’t over and an arctic blast may settle in for a long winter's nap. Andy Weissman of EBW Analytics says the bullish fundamental case continues to build for natural gas, with weather-driven demand gains over the past 2½ weeks reaching 279 Bcf. The potential for freeze-offs may carry a total above 300 Bcf. But the market has largely shrugged at the growing fundamentals, with strong technical resistance at $3.00/MMBtu repelling upward momentum.
The burgeoning fundamental bullish case may soon become too large to ignore. This month’s withdrawals from storage are likely to break February records by more than 100 Bcf, and comparisons to the 5-year average may tighten by 500 Bcf over the next 5 EIA Weekly Storage Reports.
Bullish gas fundamentals are likely to continue into spring, with higher LNG exports, lower production, and higher domestic year-over-year demand. We get the EIA gas today.
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