Energy Prospectus

The FEAR of the Covid Delta Variant is why oil prices pulled back, but the Supply/Demand fundamentals show that the virus only had a small impact on oil demand. Mask mandates have never done much to slow the spread of Covid-19 and they appear to have done nothing to slow the spread of the Delta Variant. Herd immunity however is now slowing the spread of the variant.
The price of WTI is now back over my "Right Price" estimate of $65/bbl and baring more Dr. Fauci "Fear Mongering" the oil price should push over $70/bbl before we get to Q4. As you read the following. keep in mind that falling US and OECD inventories will eventually push oil prices a lot higher.
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This was emailed to me by one of our members in NYC.

The Delta variant has been overshadowing oil markets, offsetting some of the effects of
the rapid, persisting inventory drawdowns. We believe Delta’s lightning-fast transmission means
that what we call “first order herd immunity” is reached in 6-8 months; i.e., new cases then drop
dramatically, but then level out at a still persistent level, with the full economic impact limited to
one to two quarters.

Thus, new infection drops have been seen in India (down sharply from May 7), Netherlands, U.K.
(peaking), Israel, and now Florida. These drops are occurring in developing economies (e.g.,
India) and developed alike (e.g., the others above), suggesting a fundamental force at work—
initial, “first order,” herd immunity (not masks or shutdowns).

India is a case in point. New cases are down 92% since a May 7 peak at 403,000 new
cases a day, to 32,000 on August 24, a 92% drop in eleven weeks, and had fallen 90% by July 19
to 38,000, just ten weeks; following an eight-month rise from November ‘20.

It is estimated that two-thirds of India’s population has been infected—what we call “first
order herd immunity,” which dramatically reduces, but does not stop, new cases. Likewise, in
England, which is 72% vaccinated, vs. 13% in India (65% in the U.S.), doctors can only attribute
the recent cresting to herd immunity.

India’s GDP had a 2Q’21 recession, but is already recovering in 3Q’21. The economic
impact may likewise surge through other developing economies (now Vietnam) in 3Q’21-1Q’22,
then reverse as in India, letting these economies recover in ’22. Delta may just trim growth
modestly in the more vaccinated developed world (e.g., U.S. 2Q’21 6.5%, falling to 5.7% in
3Q’21, as estimated by the Atlanta Fed’s spot GDP model).

The impact on global GDP may be dominated by the developed nations’ demands for
developing nations’ goods, providing the locomotive to see the latter through their brief
recessions.

OPEC, our most reliable source, estimates global GDP growth at 5.6% in ’21, up
0.1% from a month earlier, and 4.2% in ’22, also up 0.1% from its July forecast.

U.S. crude inventories fell 3.0mm bbls in the week ended 8/20, and total inventories fell
4.8mm bbls. U.S. crude inventories are the lowest since Jan. ’20, and demand last week was the
highest since March ’20. Crude stocks are now 6% below their 5-year average.

Crude inventories in Rotterdam, Europe’s major trading hub, are also lowest since March
’20, according to Bloomberg. IEA says crude declines in June in the overall developed world
were double the normal amount, and 3.3% below their 5-year average, 2.4% below their ’15-’19
average (eliminating the Covid-depressed ’20).

Goldman is sticking to their $80/bbl Brent forecast (i.e., $75/bbl WTI).
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PS: My opinion of our government and these world health organizations goes lower almost each day. These mask and vaccine mandates are just more ways to keep the "sheep" afraid. Lack of trust in the government is why 35% of Americans (including lots of healthcare workers) don't want the vaccines. Our material supply chains have been drained and it will take lots of energy and oil to get things back to normal. Have you noticed some empty shelves at the grocery store? Demand for oil exceeds supply today and in "Post-Pandemic World" or even in "We finally decide to live with this virus world" we will need every drop of OPEC+ oil back online.

The Energy Report: Supply Demand And COVID
By Phil Flynn (Aug 26, 2021 10:48AM ET)

If you’ve never heard of COVID-19, then a bullish stance on crude oil would be a given. Global oil inventories are falling like a rock, dropping 15 million barrels last week, or at a pace of 2 million barrels a day. The OPEC+ meeting, where the group is talking about delaying a production cut, while U.S. oil demand hits the highest level in over a year, would give a bullish stance on oil prices. Add to that mix, an unseasonal uptick in US gasoline demand to 9.572 million barrels a day. Plus, a potential large hurricane that could barrel right through production areas and into the heart of refinery row. Yet, COVID fears still weigh on the oil price despite the current bullish fundamentals.

The Energy Information Administration reported that U.S. commercial crude oil inventories (excluding those in the Strategic Petroleum Reserve) decreased by 3.0 million barrels from the previous week. At 432.6 million barrels, U.S. crude oil inventories are about 6% below the five-year average for this time of year. Total motor gasoline inventories decreased by 2.2 million barrels last week and are about 3% below the five-year average for this time of year. Finished gasoline and blending components inventories both decreased last week. Distillate fuel inventories increased by 0.6 million barrels last week and are about 8% below the five-year average for this time of year. Propane/propylene inventories increased by 2.0 million barrels last week and are about 17% below the five-year average for this time of year. Total commercial petroleum inventories decreased by 4.8 million barrels last week.

The numbers, along with demand, were very supportive and tells a story that should see one of the tightest winter time supply situations we have seen in years. Still more talk of the Fed tapering is giving the dollar a boost and adding to the selling. James “Jim” Bullard, the president and CEO of the Federal Reserve Bank of St. Louis, said this morning that, “we are getting more inflation than we expected. He downplayed the possibility that COVID would cause a delay in tapering. That would suggest that Fed Chairman Jerome Powell would have to send a signal at Friday's Jackson Hole symposium. Unless he dodges questions like Joe Biden.

The Wall Street Journal reports that, “European air travel is finally returning, thanks to a barrage of cheap tickets from discount carriers and the relatively smooth rollout of a continent-wide vaccination-certification system. Until just recently, U.S. and China domestic air-travel markets have been booming, with passengers taking advantage of what had been a fall in COVID-19 cases in both places. In the U.S., a robust vaccination drive also boosted traveler confidence.

Concerns that technically the market came back too fast from the seven-day swoon is also a concern. If oil holds the 100-day moving average of $66.76, the price recovery should continue.

Natural gas production issues should support prices all winter. EIA reported a smaller inventory build than the "experts" forecast.