Each week Josef Schachter will give you his insights into global events, price forecasts and the fundamentals of the energy sector. Josef offers a twice monthly Black Gold newsletter covering the general energy market and 34 energy and energy service companies with regular updates. He holds quarterly subscriber webinars and provides Action BUY and SELL Alerts for paid subscribers. Learn more and subscribe.
Covid-19 Coronavirus update: As of February 20th there are now over 75,000 cases worldwide and over 2,100 fatalities. Singapore, Korea and Japan and are now facing alarming increases in cases. The spin by China of less number of new cases per day relates to changes in their medical definition but even then the number of cases is still growing. China in the next two weeks will be front and centre as they attempt to get their economy back up and still focus on containing the epidemic. It may prove a difficult juggling act to get people back to work and hold the line on new cases as individuals may not be sick when they return to work but be a carrier of the virus which they can spread in the workplace. More information is coming out on the background of those affected and it appears that this is hitting older people who are smokers and more males than females. If China does not fiddle further with the definition of the virus, we may see it reach over 100,000 affected before the end of the month. In addition as more cases are counted outside of China this will destabilize economies and burst the bubble of overvalued stock markets.
EIA Data this week: The EIA data this week on a headline basis helped lift crude prices on Thursday February 20th (data delayed one day due to holiday Monday). Commercial stocks rose only a moderate 400K which was lower than the forecast of a rise of 2.5Mb on the week. The reason for the missed number was that in the details net imports were down by 1.025Mb/d or by 7.2Mb on the week. Offsetting this inventory move, commercial stocks would have been up 7.6Mb blowing away the forecast of 2.5Mb on the week. In the data the lower net imports were due to imports being down by 431Kb/d and exports rising up 594Kb/d and now back to 3.56Mb/d of exports. Demand within the US fell 1.378Mb/d to 19.59Mb/d as jet fuel and propane usage fell. WTI on Thursday reached up to US$54.50/b but has backed off to US$53.72/b as we write this piece. It would not surprise us to see WTI crude prices weaken further over the coming days.
Conclusion: WTI had a nice bounce over the last week as China announced getting its economy back on track. Prices rose from US$49.31 to US$54.50/b. We see a high probability that the virus spread may not be contained as China hopes and as more data comes out from China and as the virus infects more people in more countries that increased concern will develop. If we see a jump in cases to over 100,000 cases the oil price low of US$49.31 may burst. If so, a quick decline to US$42-44/b could occur as fear of weaker economic conditions and lower demand in 1H/20 for crude oil takes hold. The decision by OPEC to cut back 600,000 b/d in the near term has not occurred yet and if no move is made shortly this will exacerbate the downside pressure on crude prices in the coming weeks. We remain patient awaiting a low risk buying window and we will send out an Action Alert to subscribers when that happens.