A Bullish Take on Vax vs. Virus

  1. WTI nears resistance at $50
  2. Asian demand grows
  3. New U.S. production prospects
  4. Natural gas holds support at $2.24

Al pic 2009_cropped

Alan Levine—Chairman, Powerhouse
(202) 333-5380

 

The Matrix

WTI spot futures ended 2020 at $48.52. The contract was not able to gain enough strength to reach $50. Resistance at $50 was last seen in February 2020. A subsequent series of damaging public health and economic events have kept WTI below resistance.

Only now, with the turn of the year could the crude oil price be expected to move higher. (Above $50, major resistance is at $65.65 in January 2020 and $76.90, last seen in October 2018.)

One of the bullish factors determining crude oil futures pricing is world-wide demand. Estimates of consumption are running around 8% below 2019 levels.

The impact of the Covid-19 vaccine this year should allow businesses to open. During the time of lockdown last year, demand was latent for many products. Some analysts expect demand to recover to where it was last year by “late 2021 or early 2022.”

Demand gains have been experienced in China, where, for the past several months, demand has topped comparable data for 2019. Global motor fuel demand has been accelerating in India and Brazil, notwithstanding high rates of infection.

Crude oil availability is artificially depressed because OPEC+ continues to curtail seven million barrels of production. (A new movement to introduce 500,000 daily barrels back to the market is under way.) The group anticipates an added half-million barrels daily over the next several months.

Crude oil supply from Iran may be in the cards after President-elect Biden is inaugurated. This could add as much as 1.5 million to 2 million barrels per day to global supply. (This assumes Biden re-engages with Iran.)

Production in the United States declined last year. This country will start 2021 with eleven million barrels of output, two million barrels fewer than its 13-million-barrel peak reached in February, 2021, suggesting the availability of new crude oil supply—another bearish factor for crude oil prices in 2021.

 

Supply/Demand Balances

Supply/demand data in the United States for the week ended December 25, 2020, were released by the Energy Information Administration.

Total commercial stocks of petroleum fell by 14.9 million barrels during the week ended December 25, 2020.

Commercial crude oil supplies in the United States decreased by 6.1 million barrels from the previous report week to 493.5 million barrels.

Crude oil inventory changes by PAD District:
PADD 1: Down 0.2 million barrels to 10.6. million barrels
PADD 2: Plus 0.5 million barrels to 146.9 million barrels
PADD 3: Down 7.2 million barrels to 264.9 million barrels
PADD 4: UNCH from the previous report week at 24.5 million barrels
PADD 5: Plus 0.9 million barrels to 46.6 million barrels

Cushing, Oklahoma inventories were UNCH from the previous report week at 58.4 million barrels.

Domestic crude oil production was unchanged from the previous report week at 11.0 million barrels daily.

Crude oil imports averaged 5.326 million barrels per day, a daily decrease of 238,000 barrels. Exports increased 526,000 barrels daily to 3.625 million barrels per day.

Refineries used 79.4% of capacity, up 1.4% from the previous report week.

Crude oil inputs to refineries increased 273,000 barrels daily; there were 14.287 million barrels per day of crude oil run to facilities. Gross inputs, which include blending stocks, rose 244,000 barrels daily to 14.591 million barrels daily.

Total petroleum product inventories fell 8.8 million barrels from the previous report week.

Gasoline stocks decreased 1.2 million barrels daily from the previous report week; total stocks are 236.6 million barrels.

Demand for gasoline rose 107,000 barrels per day to 8.128 million barrels per day.

Total product demand increased 229,000 barrels daily to 19.317 million barrels per day.

Distillate fuel oil stocks increased 3.1 barrels from the previous report week; distillate stocks are at 152.0 million barrels. EIA reported national distillate demand at 3.594 million barrels per day during the report week, a decrease of 579,000 barrels daily.

Propane stocks decreased 6.4 million barrels from the previous report week; propane stocks are 75.1 million barrels. The report estimated current demand at 1.755 million barrels per day, an increase of 463,000 barrels daily from the previous report week.

 

Natural Gas

The final week of 2020’s natural gas futures trading started with a twenty-one cent drop from Christmas Week’s Thursday settle at $2.52. The Monday, December 28 settle, at $2.305 was about seven cents above the $2.24 low. This low was congruent with several other instances of support at this level since August, 2020.

Spot futures rose to $2.55 as the year ended, filling a weekly gap. Next resistance is at $2.69. Natural gas futures prices may have reached seasonal lows at this time notwithstanding bearish weather fundamentals.

According to the EIA:

Working gas in storage was 3,460 Bcf as of Friday, December 25, 2020, according to EIA estimates. This represents a net decrease of 114 Bcf from the previous week. Stocks were 251 Bcf higher than last year at this time and 206 Bcf above the five-year average of 3,254 Bcf. At 3,460 Bcf, total working gas is within the five-year historical range.

 

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