Exclusive Analysis by Dr. Nancy Yamaguchi

Oil prices are retreating following yesterday’s news that over 37,000 new COVID-19 cases were reported in the U.S.—the highest daily total ever. Since the economic re-opening, the majority of states now are experiencing increased infections. Although the White House continues to state that there will be no return to economic shutdown, a number of state governors are now being forced to rethink their strategies. West Texas Intermediate (WTI) crude prices have fallen back to the $38-$39 a barrel level. Crude and refined product prices are sagging, handing back last week’s gains.

The International Monetary Fund (IMF) released its World Economic Outlook update, stating that the COVID-19 pandemic has had a more serious impact during the first half of 2020 than expected. In April, the IMF forecast a 3% drop in global GDP. Now, it believes that the contraction will be 4.9%. The picture in the U.S. is especially severe. IMF’s April forecast expected a 5.9% drop in U.S. GDP this year. The update foresees a steep drop of 8%.

The IMF forecast reinforces warnings from the U.S. Federal Reserve Bank. While the Fed has reassured markets that it will continue to protect the economy, it also has warned that the road to recovery will be a long one. This week, the Fed warned that U.S. banks could face significant loan losses, despite the fact that most have performed well in annual stress tests.

U.S. Department of Labor weekly data show 1.48 million initial jobless claims for the week ended June, a decrease of 60,000 from the prior week. While the numbers are trending down, there has not been a full and speedy recovery. The prior week’s figure was revised upward from 1.508 million to 1.540 million for the week ended June 13. There have been 49.65 million unemployment claims so far this year, 47.25 million of them in the 14 weeks since COVID-19 shelter-in-place orders were launched, and in spite of the current economic reopening.

As of the time of this writing, the Johns Hopkins Coronavirus Resource Center reports that global cases of COVID-19 have risen to 9,641,472, with 489,990 deaths. Confirmed cases in the U.S. rose to 2,422,555. U.S. deaths attributed to the disease have reached 124,424. By now, over half of the states are reporting an increase in new COVID-19 cases. The demographics are changing, with infections now on the rise among younger people. Health experts note that the economic re-opening moved many of these people back to work and into normal social contact. Some individuals continue to refuse to adopt guidelines, and even mandatory requirements, concerning social distancing and mask wearing.

WTI crude futures prices opened at $39.09 a barrel today, a small decline of $0.06 a barrel (0.2%) from last Friday’s open of $39.03 a barrel. Prices today are declining, however, so the week may be heading for a finish in the red. Our weekly price review covers hourly forward prices from Friday, June 19 through Friday, June 26. Three summary charts are followed by the Price Movers This Week briefing, which provides a more thorough review.

Gasoline Prices

Gasoline futures prices fell to open at $1.2057 per gallon today on the NYMEX, compared with $1.2654/gallon on June 19. This was a setback of 5.97 cents (4.7%,) readjusting after last week’s surge of 15.12 cents. March brought a crippling collapse of nearly 87 cents per gallon, but prices gradually crept back up in April and May. U.S. average retail prices for gasoline rose by 3.1 cents/gallon during the week ended June 22. Two weeks ago, retail prices reclaimed the territory above $2 per gallon. Retail prices averaged $2.129/gallon at the national level. Gasoline futures prices are falling today, trading in the range of $1.17/gallon to $1.20/gallon. The latest price is $1.1780/gallon.

Source: Prices as reported by DTN Instant Market

Diesel Prices

Diesel opened on the NYMEX today at $1.1597/gallon, a drop of 4.13 cents, or 3.4%, from last Friday’s open of $1.201/gallon. U.S. average retail prices for diesel rose by 2.2 cents per gallon during the week ended June 22 to average $2.425/gallon. Diesel prices have weakened more or less steadily this year, missing some of the price recovery seen in crude and gasoline markets. Diesel futures prices today are falling, and the week appears to be headed for a finish in the red. Currently, diesel is trading in the range of $1.13-$1.15/gallon. The latest price is $1.1306/gallon.

Source: Prices as reported by DTN Instant Market

WTI Crude Prices

WTI crude forward prices opened on the NYMEX today at $39.09 a barrel. The disturbing uptick in coronavirus cases caused a price retreat, reinforced by repeated cautions from the Fed warning of a “long road” to economic recovery. The Fed warned banks that the economic slump could lead to losses on loans. Oil prices appear to be headed for a finish in the red. WTI prices are trading in the $38–$39 a barrel range currently, but may dip below $38 a barrel. The latest price is $38.10 a barrel.

Source: Prices as reported by DTN Instant Market

PRICE MOVERS THIS WEEK: BRIEFING

Oil prices are retreating following yesterday’s news that over 37,000 new COVID-19 cases were reported in the U.S.—the highest daily total ever. Since the economic re-opening, the majority of states now are experiencing increased infections, with dangerously high levels in states including Arizona, California, Florida, Mississippi, Nevada and Texas. Although the White House continues to state that there will be no return to economic shutdown, a number of state governors are now being forced to rethink their strategies, including those in Texas, North Carolina, Kansas, Louisiana, Arizona, and even Florida. West Texas Intermediate (WTI) crude prices have fallen back to the $38-$39 a barrel level. Crude and refined product prices are sagging, handing back last week’s gains.

The International Monetary Fund (IMF) released its World Economic Outlook update, stating that the COVID-19 pandemic has had a more serious impact during the first half of 2020 than expected. In April, the IMF forecast a 3% drop in global GDP. Now, it believes that the contraction will be 4.9%. The picture in the U.S. is especially severe. IMF’s April forecast expected a 5.9% drop in U.S. GDP this year. The update foresees a steep drop of 8%. The IMF also warned that global public debt would exceed 100% of GDP this year, as countries around the world borrow money to fund massive stimulus packages. The IMF’s base case forecast predicts that global public debt will reach record highs in 2020 and 2021 at 101.5% of GDP and 103.2% of GDP, respectively.

The IMF forecast reinforces warnings from the U.S. Federal Reserve Bank. While the Fed has reassured markets that it will continue to protect the economy throughout the crisis, it also has warned that the road to recovery will be a long one. This week, the Fed warned that U.S. banks could face significant loan losses, despite the fact that most have performed well in annual stress tests.

U.S. Department of Labor weekly data show 1.48 million initial jobless claims for the week ended June, a decrease of 60,000 from the prior week. While the numbers are trending down, there has not been a full and speedy recovery. The prior week’s figure was revised upward from 1.508 million to 1.540 million for the week ended June 13. There have been 49.65 million unemployment claims so far this year, 47.25 million of them in the 14 weeks since COVID-19 shelter-in-place orders were launched, and in spite of the current economic reopening.

As of the time of this writing, the Johns Hopkins Coronavirus Resource Center reports that global cases of COVID-19 have risen to 9,641,472, with 489,922 deaths. Confirmed cases in the U.S. rose to 2,422,312. U.S. deaths attributed to the disease have reached 124,922. By now, over half of the states are reporting an increase in new COVID-19 cases. States with significant increases include Alabama, Arizona, Arkansas, California, Florida, Georgia, Idaho, Indiana, Kansas, Louisiana, Mississippi, Ohio, Oklahoma, Oregon, South Carolina, Texas and Utah. The demographics are changing, with infections now on the rise among younger people. Health experts note that the economic re-opening moved many of these people back to work and into normal social contact. Some individuals continue to refuse to adopt guidelines, and even mandatory requirements, concerning social distancing and mask wearing.

Oil prices moved sideways midweek when the American Petroleum Institute (API) released information showing an addition of 1.75 mmbbls to crude oil stockpiles, more than offset by significant drawdowns of 3.86 mmbbls from gasoline inventories and 2.605 mmbbls from diesel inventories. The API’s net inventory draw was a significant 4.712 mmbbls. Market analysts had predicted a similar pattern, but with smaller volumes and a lesser overall draw.

Prices fell back on Wednesday when U.S. Energy Information Administration (EIA) official statistics reported a more bearish picture. The EIA reported a smaller addition to crude oil stockpiles of 1.442 mmbbls, but the drawdowns from gasoline stocks was only 1.673 mmbbls, and diesel inventories rose by 0.249 mmbbls rather than falling. The EIA net result was a small inventory build amounting to 0.018 mmbbls. Crude oil inventories have expanded in 19 of the 24 weeks since the first week of January, sending a total of 113.76 mmbbls of crude oil into storage. The volume of crude flowing into stockpiles has slowed over the past month, however, as production is being cut and demand is picking up.

During the worst of the oversupply, the EIA reported that crude oil in storage at Cushing rose from 35,501 barrels during the week ended January 3, 2020, to 65,446 barrels during the week ended May 1, 2020, an increase of 29,124 barrels. Cushing stocks steadily have been drained since then, falling to 45,845 mmbbls during the week ended June 19. Some surplus crude is being stored in the National Strategic Petroleum Reserve (SPR.) The EIA reports that SPR additions were made in the weeks ended April 24 (1.150 mmbbls), May 1 (1.716 mmbbls), May 8 (1.933 mmbbls), May 15 (1.882 mmbbls), May 22 (2.111 mmbbls), May 29 (4.02 mmbbls), June 5 (2.22 mmbbls), June 12 (1.731 mmbbls) and June 19 (1.991 mmbbls). Current SPR stocks are 653.721 mmbbls.

U.S. crude production halted its decline, though it is doubtful that this signals a renewed upturn. The EIA reported that U.S. crude production during the week ended June 19 rebounded to 11.0 mmbpd, up 0.5 mmbpd from 10.5 mmbpd the prior week. According to the EIA’s weekly data series, U.S. crude production averaged 13.025 mmbpd in February, the highest total ever. Production fell to 12.25 mmbpd in April, 11.52 mmbpd in May, and 10.867 mmbpd during the first three weeks of June. The EIA has revised downward its forecast of 2020 production, cutting it to 11.56 mmbpd. However, the forecast of demand has been cut as well, leaving a supply overhang.