Energy Prospectus

Comments below are from Raymond James on January 8:

At the end of 2019, phase one of the U.S.-China trade deal and reduced Brexit uncertainly alleviated oil demand-related concerns. Building on those gains, the past week’s escalation of the U.S.-Iran confrontation pushed oil prices even higher, as the geopolitical risk premium widened. The Iran situation remains fluid, but based on what we know today, the scenario of an actual supply disruption looks unlikely.
Regardless, the supply side of the equation is already broadly bullish: the larger U.S. producers are exhibiting restraint in capital allocation, and U.S. well productivity improvements are slowing down; OPEC plus Russia’s production cuts include especially strong Saudi discipline; Venezuela’s domestic crisis shows no signs of ending; and IMO 2020 has officially taken effect as of January 1. The 12-month futures strip ($60.36/Bbl for WTI and $64.82/Bbl for Brent) shows considerable backwardation for both Brent and WTI; for comparison, our 2020 forecast is $65.00 WTI/$70.00 Brent.
Several key question marks remain:
1) on the bullish side, the possibility of supply disruptions above and beyond the current ones, including but not limited to Iran,
2) on the bearish side, the uncertain global macro landscape and resulting read-through for oil demand.

All of my forecast/valuation models are based on WTI oil averaging $60/bbl for all future periods. WTI averaged approximately $56/bbl in Q4 2019.

Notes below are from Aegis Energy at 9AM ET on Jan 9

WTI is down 22c to $59.39/Bbl, and Brent is down 28c to $65.16/Bbl
. Oil prices are steady this morning after a sharp drop on Wednesday following a de-escalation between the U.S. and Iran
. The prospect of an open war in the Middle East has backed off for now
Price is now lower than right before the U.S. took out Iran’s top general as the multi-dollar geopolitical risk premium has evaporated

Wednesday’s price action saw nearly a 10% intraday range, the largest one day range movement in at least the last five years in terms of dollars

US crude stocks surprised analysts yesterday after showing a build where the consensus was a material withdrawal
. Crude inventories rose by 1.2 MMBbl as exports and refinery runs fell sharply for the week ended January 3
. Large product builds also helped make the data release bearish
. US gasoline stocks rose by a whopping 9.1 MMBbl, the largest weekly build in four years
. Distillate fuel stocks increased by 5.3 MMBbl to 139.1 MMBbl

President Trump held a press conference on Wednesday morning calling for peace but also promising to levy more sanctions on Iran
. He opened his presser by saying that Iran will never be able to obtain nuclear weapons
. Overall rhetoric was called for de-escalation and a path away from further military action

The oil market is getting some support after China announced that Vice Premier Liu Le will travel to Washington to sign the first phase of the trade deal between the world’s two biggest economies. The signing is set for January 15th.

Negotiating teams from both sides remain in close communication on the particular arrangements of the signing, Gao told reporters at a regular briefing.

This is the first Chinese confirmation that the deal would be signed after US President Donald Trump said on December 31 that the Phase 1 deal with China would be signed on January 15 at the White House.

Liu will travel with the titles of Politburo member, vice premier and top trade negotiator, according to Gao. There was no mention of whether he will be designated a special envoy for President Xi Jinping, a title he held on some previous trips to Washington, DC.

Trump had said he would sign the deal with "high-level representatives of China", and that he would later travel to Beijing to begin talks on the next phase.

The Phase 1 deal reached last month is expected to cut tariffs and boost Chinese purchases of US farm, energy and manufactured goods while addressing some disputes over intellectual property.

But no version of the text has been made public, and Chinese officials have yet to publicly commit to key points such as increasing imports of US goods and services by $200bn over two years.

US Trade Representative Robert Lighthizer has said he expects the 86-page document of the deal will be publicly released after it is signed.