Energy Prospectus

Opening Prices:
> WTI is down 4c to $25.74/Bbl, and Brent is down 8c to $29.90/Bbl.
> Natural gas is up 0.2c to $1.722/MMBtu.

Closing Prices:
> WTI prompt month (JUN 20) was down $0.49 on the day, to settle at $25.29/Bbl.
> NG prompt month (JUN 20) was down $0.104 on the day, to settle at $1.616/MMBtu.

Despite the bullish EIA report the price of the front month NYMEX contract for WTI is down about 40 cents.
Reuters - Futures traders are avoiding the June and even July light sweet crude (WTI) futures contracts to avoid the extreme volatility that marked the run up to expiry of the May contract last month. < As I explained in my podcasts, in the "Real World" upstream companies did not pay anyone to take their oil on April 20 or 21 when the May NYMEX contract for WTI went negative. Just a few hedge funds stupidly got caught holding long positions in the May contract as the expiration date approached and could not find buyers.

At the close of business on Tuesday, with five more trading sessions before the June contract is due to expire, traders held contracts equivalent to just 155 million barrels for delivery. < Buyers for the Refiners that do have storage space available so they can take physical delivery are eagerly waiting to take advantage of stupid traders this month.

With five more sessions to go last month, traders still had 232 million barrels for delivery in May, according to an analysis of exchange records.

Positions in the June contract have been well below the five-year average since it replaced May as the front-month contract three weeks ago.

Futures positions have been progressively shifted forward away from the June and even July contracts towards August and especially September, where they are safely away from delivery.

This morning's oil market forecasts:

> UBS forecasts that the global crude outlook for the rest of 2020 and 2021 will improve, with Brent prices recovering to $43 per barrel by year-end and $55 by mid-2021. It also projected oil demand will contract by 6 million barrels per day in the second quarter of 2020 year on year, and that the market will be balanced in the third quarter and undersupplied in the fourth quarter.

> Analysts from Morgan Stanley predicted that oil demand – which they said suffered its worst month in April – will begin to recover. But the investment bank said inventories will keep rising, likely slowing any significant improvement in prices. As a result, it kept price forecasts unchanged from previous estimates, putting Brent at $35 per barrel in the fourth quarter of 2020.

> IHS Markit said it expected global production of oil and other liquids to fall by up to 17 million barrels per day in the second quarter of this year – including nearly 14 million bpd of crude. Saying a “rapid and brutal adjustment” of supply is underway that will affect all producing countries, it added demand from April to June will be 22 million bpd less than it was a year ago.

> Rystad Energy forecasts oil supply deficit, prices at $68 per barrel in 2025: A slowdown in global activity and investment, combined with an eventual rebound in demand, could lead to a supply deficit of 5 million barrels per day in 2025 and push prices to over $68 per barrel, Rystad Energy said. The firm added the slump in the upstream sector will take about 6 million bpd off the market, and some OPEC members will boost output to fill much of the gap. “The current low oil price has tightened the medium-term supply and demand balance considerably. Despite high growth in tight oil, oil production outside the OPEC Middle East countries is expected to stay flat over the next five years. As demand is expected to recover, the core OPEC counties will need to increase their supply significantly or the market will face even higher prices than our base-case forecast,” says Rystad Energy Head of Upstream Research Espen Erlingsen.

Demand for transportation fuels is picking up.
Raymond James Update on 5-11-2020:
Reporting season commentary by refiners and others with a "real-time" look at demand shows a bottom in April, and rest of 2Q improving.

"The third piece of evidence we can cite in making the case that COVID's oil demand impact has already peaked is commentary by refining,
midstream, and retail fuel companies throughout the 1Q20 reporting season. The largest U.S. independent refiners (Marathon Petroleum, Phillips
66, Valero) all noted that the peak demand decline in their systems occurred in the last couple weeks of March and first couple weeks of April —
with gasoline demand declines in the U.S. down ~40-55% depending on region at the worst point. In late April and early May, the early phases
of improvement have been noted, with increases of 10-20 percentage points (i.e., currently down ~25-35% compared to "normal"). Exxon and
Chevron made similar comments from a global perspective. Large pipeline operators (Enterprise, Kinder Morgan, Magellan) also noted swift
declines, but the early phases of recovery as well. Lastly, smaller refiners (Delek, HollyFrontier) and retail station operators (Global Partners,
Murphy USA) have corroborated the improvements from the bottom. We are still cautious of a swift recovery to normal throughout 2Q, and even
into 2021, but gasoline demand should steadily improve. Diesel demand is a trickier equation - after an initial surge in demand in the scramble to
re-stock empty grocery shelves, that has since fallen off as the industrial economy suffers. We have likely seen the bottom in diesel demand as well,
but the swiftness of recovery will depend on how quickly the broader economy can bounce back. Lastly, jet fuel demand obviously remains weak
- but the global bottom in demand (based on airline schedules) is likely to occur in May, before an uncertain, but likely painfully slow recovery."