Energy Prospectus

Raymond James is tracking COVID-19's impact on business and traffic around the world to estimate the impact on oil demand. Here is their conclusion.
If you'd like to read the full report, send me an email: dmsteffens@comcast.net

Conclusion
Over the next three to six months, the oil market's day-to-day gyrations will be driven, in large part, by problematic COVID metrics and resulting
lockdowns. Heading into the Northern Hemisphere winter, Europe’s COVID situation is front-and-center, but lockdowns in other parts of the world
are likely to become more commonplace as well, though without the severity that characterized the original lockdowns in March and April. Bearing
in mind the read-through that slower economic normalization carries for road traffic, we are modeling global oil demand down in 4Q20 versus
3Q20, and then flat in 1Q21. Demand recovery should resume by the middle of 2021 as vaccines become widely available around the world, but
first the oil market will need to get through the difficult winter ahead.

To clarify, we use the term lockdown as shorthand for mandatory closures of all or most non-essential businesses, whether or not the jurisdiction
imposed a stay-at-home order. Our tracker's focus is on businesses, not schools/universities or government agencies. We define conclusion of reopening as everything up to and including all retail stores and restaurant dining rooms, for at least a substantial portion of any given jurisdiction.
The "up to" part encompasses the economy's low-personal-contact sectors: for example, ground transport, construction, manufacturing,
professional services, certain types of retail, and outdoor seating at restaurants. There are phases even beyond what our tracker includes —
particularly entertainment venues such as bars, theaters/cinemas, stadiums, and convention centers — but our focus is on the extent to which
ordinary, day-to-day economic life is allowed to function normally. The full dataset in Excel format is available upon request.

OPEC+ Updates

On October 16 Reuters reported OPEC and its allies fear a prolonged second wave of the COVID-19 pandemic and a jump in Libyan output could push the oil market into surplus next year, according to a confidential document seen by Reuters, a gloomier outlook than just a month ago. A panel of officials from OPEC+ producers, called the Joint Technical Committee, considered this worst-case scenario during a virtual monthly meeting on Thursday. In September, the panel had not seen a surplus under any scenarios it considered. Such a surplus could threaten plans by OPEC, Russia and allies, known as OPEC+, to taper record output cuts made this year by adding 2 million b/d of oil to the market in 2021.

The document presented scenarios that included a base case that still showed a deficit in 2021 of 1.9 million b/d on average, albeit less than the deficit of 2.7 million b/d forecast in the previous month's base case. But under its worst-case scenario, the document said the market could flip into a surplus of 200,000 b/d in 2021. Under the document's base case, OECD oil stocks are expected to stand slightly above the five-year average in the first quarter of 2021, before falling below that level for the rest of the year. A ministerial OPEC+ panel, known as the Joint Ministerial Monitoring Committee (JMMC), will consider the outlook when it meets on Monday. The JMMC can make a policy recommendation. Oil ministers from OPEC+ countries are scheduled to meet again on November 30.

On October 17 Bloomberg reported Russia and Saudi Arabia held a second, and unusual, phone call this week to discuss the OPEC+ agreement after officials from the group warned on Friday of the potential for a weaker oil market in 2021. President Vladimir Putin and Saudi Arabia Crown Prince Mohammed Bin Salman spoke Saturday in what the Kremlin said was a continuation of an October 13 conversation. The two discussed the OPEC+ cooperation “extensively,” the Kremlin said in an emailed statement. “Both sides reiterated their readiness for further close coordination in this area in the interest of maintaining stability in the world energy market,” the Kremlin said. Putin and Saudi leaders haven’t talked twice in the same week since April, when Moscow and Riyadh were trying to reach a deal to end a devastating oil price war. “If OPEC goes ahead and adds production as scheduled in January, then we will not draw crude stocks anymore,” Torbjorn Tornqvist, the co-founder of major oil trading house Gunvor Group, said. “I do suspect that the market is pricing now the likelihood that they will postpone the output increase.”

Energy Report: Stalemate
By Phil Flynn (Oct 19, 2020 09:20AM ET)

Oil prices have been in a stalemate between the bulls and bears, with fleeting victories on either side of the equation.

Global oil supplies have been tightening but fears of a worldwide second wave of Covid 19 is raising demand fears.

The stakes are high that OPEC Plus, as the Joint Ministerial Monitoring Committee, meets online today. There is a push by Saudi Arabia and Russia to extend cuts through 2021 and push members who have cheated on reductions to continue to make up the difference. They also have to talk about an adjustment to make up for the return of Libyan oil supply. No decision is expected today, but a surprise announcement of a cut extension could break us out of this trading range. A deal may be critical to continue to drain global oil supply, mainly because we see signs that U.S. producers will try to raise output again.

MarketWatch reported that Baker Hughes (NYSE:BKR), -2.30% on Friday said that the number of active U.S. rigs drilling for oil rose by 12 to 205 this week. The increase followed increases in each of the last three weeks. The total active U.S. rig count, meanwhile, was up 13 to 282, according to Baker Hughes. < U.S. oil & gas production won't stabilize until there are at least 600 rigs drilling for oil and 150 rigs drilling for gas. Some companies will be completing more wells this quarter, so they can be included in their year-end reserve reports as "Proved". Proved Reserves (P1) are the basis for credit facility lending limits.

U.S. output was down significantly because of Hurricane Delta and should rebound this week. Yet will it recover to pre hurricane levels of over 11 million barrel of oil a day? HFI Research says that it will not. They say that the real-time U.S. oil production reading indicates a level of 10.783 million barrels a day into October. With September U.S. oil production now set at ~11 mb/d average, the implied decline rate between August and September excluding shut-ins is around ~500k b/d. Consensus has U.S. oil production flat around ~11 mb/d for the next year, this will prove to be too optimistic. HFI has a U.S. oil production declining to ~10.4 mb/d by year-end and depending on where WTI is, and it could be even lower by mid-2021. The consensus production forecast will only come true if WTI is closer to $60/bbl WTI.

We should see draws (for last week) across the board on crude oil, gasoline, distillates. Demand improvements have been a factor. China and India say great demand, and in the U.S., an uptick in distillate demand was supportive.

We still believe that oil is bottoming. We look for a global supply deficit to lift prices. < MY TAKE in inline with the most recent Raymond James report, that OECD oil inventory declines will continue during the winter, but at a slower pace than they declined (2.0 million bpd) in Q3. Starting in May inventory declines will accelerate, especially if there is a working vaccine for COVID-19. My forecasts assume WTI will stay around $40/bbl through April, ramp to $50/bbl by end of Q2 2021 and then ramp to well over $60/bbl during the summer.

Natural Gas is setting up for an up week as winter comes in and LNG exports resume. Look to put on bullish strategies. < Next week the front month NYMEX contract (DEC20) should push ngas firmly over $3.00.