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Energy Report: Stalemate

By Phil FlynnCommoditiesOct 19, 2020 09:20AM ET
Energy Report: Stalemate
By Phil Flynn   |  Oct 19, 2020 09:20AM ET
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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. 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 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.

Natural Gas is setting up for an up week as winter comes in and LNG exports resume. Look to put on bullish strategies.

Energy Report: Stalemate

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Energy Report: Stalemate

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