Energy Brief for Oct 2
The petroleum complex traded on the defensive as President Trump announced he had tested positive for COVID-19. The news was taken in a negative fashion as uncertainty grew over the course of the virus and the impact any possible policy changes might have on mobility and likewise the US economy. The weakness took values down to lows reached in early September near 37.00 basis the December contract.
US policy developments will now come into focus. The stimulus plan will likely be pushed to the front burner as the Senate seeks new talking points other than Trump’s health and handling of the pandemic ahead of the election. The lackluster employment report showing payrolls increased by 669,000 last month compared to the increase of 1.49 million in August did little to instill confidence that the US economy was recovering, and instead supported the need for additional measures.
Concerns are building over excess supplies. The potential that Iranian sanctions will be lifted if Biden gets elected along with reports that Libyan production has increased to 270 tb/d puts the focus on OPEC and their willingness to throttle back production amid consumption declines. With refinery throughput reduced by weak margins, the crude market continues to face strong headwinds in its effort to re-balance inventories.
The market made a spike low early this morning, bottoming out at 2.373 in the November contract as commodities sold off across the board on news that President Trump had contracted the coronavirus. Prices managed to regain some of the losses at mid day, but still ended lower by nearly 9 cents at 2.438. Lackluster weather demand remains a short term drag on the market as high storage levels continue to cause congestion issues and pressure the cash market. Yesterday’s EIA report showed a 76 bcf injection, which was slightly below estimates and gave bulls some hope that expected tightness is gradually beginning to materialize. LNG flows improved today, and Cameron saw small feedgas flows that may indicate a restart in the near future. The market likely flounders until they are back online and maintenance at other LNG facilities is complete. Whether that is soon enough to save the November contract remains to be seen.
Charts Courtesy of DTN Prophet X, EIA, Reuters.
Futures and options trading involve significant risk of loss and may not be suitable for everyone. Therefore, carefully consider whether such trading is suitable for you in light of your financial condition. The information and comments contained herein is provided by ADMIS and in no way should be construed to be information provided by ADM. The author of this report did not have a financial interest in any of the contracts discussed in this report at the time the report was prepared. The information provided is designed to assist in your analysis and evaluation of the futures and options markets. However, any decisions you may make to buy, sell or hold a futures or options position on such research are entirely your own and not in any way deemed to be endorsed by or attributed to ADMIS. Copyright ADM Investor Services, Inc.