Energy Prospectus

Opening Prices:
> WTI is up $2.84c to $32.27/Bbl, and Brent is up $2.13 to $34.63/Bbl.
> Natural gas is up 9.6c to $1.742/MMBtu.

Closing Prices:
> WTI prompt month (JUN 20) was up $2.39 on the day, to settle at $31.82/Bbl.
> NG prompt month (JUN 20) was up $0.137 on the day, to settle at $1.783/MMBtu.

Aegis Energy:
> This summer is a critical time for the oil market. Demand losses have been met by production shut-ins and reduced development. But prices are threatening to rise too fast and undo the supply reductions too soon. < MY TAKE: As long as the number of rigs drilling for oil is below 800, U.S. oil production will keep falling.
> Meanwhile, the gas market is waiting, wondering how high gas prices could go if associated-gas production continues to fall. A cold winter could send prices much higher, and 2021 may be under-supplied even if this winter were to be mild.

Reuters - A month after sellers had to pay nearly $40 a barrel to get rid of U.S. oil futures, the next watershed moment looms with the expiry of the June contract on Tuesday - and so far there is little sign of a repeat of the historic plunge.
The extent of the damage that the coronavirus pandemic had inflicted on the oil industry came into focus on April 20, when the U.S. benchmark WTI CLc1 contract plunged to minus $38 a barrel.
The virus destroyed so much fuel demand as billions of people stopped traveling that there was almost nowhere left to store the oil. So on the day before the May contract expired, investors (in NYMEX futures contracts) stuck with barrels had to pay buyers to take it away. < As I said in the podcast, in the "real world" no physical oil prices went negative.
A month later, governments around the world are slowly lifting travel restrictions and there are signs that demand is recovering from its nadir. Oil prices have staged something of a recovery, with U.S. crude rising on Monday to more than $30 a barrel and hitting its highest level since March 16.
As oil producers worldwide cut output rapidly, the pressure on storage is easing: U.S. government data this week showed crude inventories fell.

“There’s clearly a different feel to the oil market heading into this contract expiry, with production cuts having been enforced globally, either through deals or unilaterally,” said Craig Erlam, senior market analyst at OANDA. “But will it be enough to avert another panic selling moment? The odds have certainly reduced ... there’s a fine line between confidence and complacency and we can only hope that line hasn’t been crossed or early next week it could quickly unravel.”

The positive mood was reinforced as U.S. Federal Reserve Chairman Jerome Powell issued an optimistic outlook for economic recovery later this year. “Assuming there is not a second wave of the coronavirus, I think you will see the economy recover steadily through the second half of this year,” Powell said Sunday night in broadcast remarks.

Raymond James: "Last week, we delved into global oil demand, pointing out that the worst of the COVID-19 pandemic's demand impact is in the rearview mirror, though it will remain a headwind for the rest of 2020 and all of 2021, reflecting a combination of post-crisis economic damage and changes in travel patterns. Today we will turn our attention to the supply side of the equation and update our oil price forecast." If you'd like to read RJ's updated oil price forecast send me an email: dmsteffens@comcast.net

For those of you worried about U.S. shale companies ramping up drilling programs as oil prices firm up over $30/bbl:
"Even without shut-ins, U.S. oil production has already started to decline, reflecting the epic collapse in drilling activity: the rig count is currently at the lowest level on record. Global capital spending in 2020 is below its previous (2016) trough, and nowhere has it fallen more sharply than in the U.S. While most of the shut-in volumes can be brought back on fairly quickly, the impact of the drastic cutbacks in capital spending will last far longer. At strip pricing, there is no way to avoid U.S. production continuing to fall through at least 2025. The industry would simply not be able to generate sufficient cash flow to enable spending to recover to maintenance levels, to say nothing of resuming growth." - Raymond James May 18, 2020

Lumber And Copper Signaling Where The Global Economy Is Headed Next
Interesting article: https://www.investing.com/analysis/lumb ... -200524926

These commodity prices tell us where the global economy is heading.

Oil Prices Soaring. Here's Why
By Phil Flynn May 18, 2020 09:50AM ET

Pent up demand, stimulus, and a historic production cutback is unleashing economic optimism and real oil demand. Oil prices are soaring as there are more signs that demand is rising more quickly than many had anticipated and hopes that an economic rebound boom is right around the corner. Not only do we see car and air traffic rise, but there are also reports that Chinese oil and gasoline demand are already back to pre-coronavirus levels. China is not only going back to work but also back to play and going out to restaurants and other normal activities. This is a sign that the U.S. and other parts of the world will be on track for a big oil demand recovery.

This snap-back in oil demand comes as OPEC Plus is ahead of the curve in implementing production cuts, and U.S. oil producers cut back production in the most significant reduction in history. U.S. oil production has fallen close to 2 million barrels a day, and U.S. drillers cut oil rigs by 35 rigs to a record low 339 rigs, according to Baker Hughes. Add to that the sense that Fed Chairman Jerome Powell will do whatever it takes on the stimulus front and says that we will get to "an even better place" in the economy before the coronavirus hit and that it "won't take that long." The oil market is taking those words to heart.

Saudi oil exports reportedly have fallen to 8.19 million barrels a day. Kuwait and Saudi Arabia have also agreed to halt production from their joint Khafji oil field. This comes as OPEC's second-biggest producer Iraq said it plans to halt output from Al-Ahdab oilfield due to protests that are hampering operations, according to Reuters.

Reports are that the Saudi Sovereign wealth fund bought a significant stake of Boeing (NYSE:BA). It seems like they are betting on a rebound as well.

America is facing a very tight gasoline market. Gasoline prices are already on the rise, and refiners are dragging their feet as U.S. demand starts to make a come back. I am not the only one saying that. Dow Jones Joe Wallace, "Some fund managers think it is safer and will prove more lucrative, to invest in refined-oil products or Brent, a blend of crudes produced in the North Sea. The hottest trade right now: Gasoline. A month ago, daily requests for driving directions on Apple Inc (NASDAQ:AAPL).'s Maps app had dropped almost 50% from mid-January, according to data from the technology company. As of May 8, that shortfall had narrowed to 24% with more drivers hitting the road. That has helped push wholesale U.S. gasoline futures 38% higher over the past month to 97 cents a gallon ($40.74 a barrel) Friday.

Retail gasoline prices rose for a second consecutive week to a national average of $1.83 a gallon on May 11, according to GasBuddy. Refiners aren't earning much money from making gasoline even at these higher prices. That is in part because sweeping production cuts, a pickup in road transport, and the re-opening of Asian economies have helped U.S. crude-oil prices rallied after their historic crash last month. Futures contracts for the delivery of West Texas Intermediate in June have recovered to $29.71 a barrel (approaching the close at more than $32/bbl), almost triple their closing low on April 21. That came a day after contracts for delivery in May slid beneath $0, the first time WTI futures turned negative.

The gap between gasoline and crude prices stood at $12.24 a barrel Friday, 45% lower than a year before. That difference, known as the crack spread, roughly equates to a refiner's profit margin for "cracking" crude into gasoline. Weak margins will stop refiners from swamping the market with gasoline as demand swells, said Doug King, chief executive of London-based RCMA Capital LLP. Rising consumption, coupled with steady production, has already started to eat into the 250 million-plus barrels of Gasoline stored in the U.S. -- one reason Mr. King expects gasoline prices will rise faster than crude.

Gasoline prices will also outperform diesel until airplanes return to the skies in significant numbers, according to Mr. King. Diesel is in abundant supply because refiners diverted production away from jet fuel, and toward diesel when planes were grounded because of the coronavirus pandemic. Adding to the pressure, journeys made using diesel are likely to fall as U.S. energy companies cut crude output. Oil producers are a significant user of diesel-fueled trucks. "Gasoline will perform pretty well over the next two months. Diesel will continue to struggle," said Mr. King.

Based on what we see in oil, the recession will be much shorter than people think. Barring a second-wave of the coronavirus, we will see an economic boom as global economies reopen against a backdrop of the historic stimulus.