There are 60,000 reasons why oil prices are faltering. A grim report that showed a record US daily cases of COVID-19 infection reported. While many of those cases maybe because of increased testing, the fear that this spike will reverse oil demand gains is a growing concern. Not just here in the US but around the globe as well. In fact, the International Energy Agency, (IEA), while caught by surprise by the swift recovering global oil demand, is warning that the rise in COVID cases is the biggest threat to demand and the oil price recovery.
The IEA says:
“Global oil supply fell by 2.4 mb/d in June, to a nine-year low of 86.9 mb/d. Robust compliance with the OPEC+ output deal and steep declines from other producers, led by the United States and Canada, has cut world oil output by nearly 14 mb/d since April. If the OPEC+ cuts stay in place as agreed, global supply could fall by 7.1 mb/d in 2020 before seeing a modest recovery of 1.7 mb/d next year.
Global oil demand fell by 16.4 mb/d year-on-year in 2Q20 as lock-downs were imposed to combat the COVID-19 pandemic. Demand rebounded strongly in China and India in May, increasing by 0.7 mb/d and 1.1 mb/d M-o-M, respectively. World oil demand is projected to decline by 7.9 mb/d in 2020 and to recover by 5.3 mb/d in 2021. The recent increase in Covid-19 cases and the introduction of partial lock-downs introduces more uncertainty to the forecast."
Still while oil has faltered at $40 a barrel, we are still on a path of tightening supply. Unless we have a major rerun of a global economic shutdown, the worst should be over. Yet shutdown fears are weighing and if they continue it will mean that US oil producers will have to start shutting in again.
Can Natural Gas Demand Hold Up?
Natural gas demand had been coming back. Will it continue? Lock-downs may not have the same impact on gas demand, but we will see if Tropical Storm Fay has its way and do its own gas demand killing lock-down. Refiners on the East Coast also have to keep an eye on Tropical Storm Fay. Fox News reports that Tropical Storm Fay is expected to come closer to making landfall Friday with rain and flooding expected along the mid-Atlantic coast and southern New England. Tropical Storm Warnings and flash flood watches remain in effect for the tri-state coastal area, FOX 5 in New York reported and the worst of the rain in the area is expected Friday afternoon into Saturday morning.
The storm had grown slightly stronger early Friday as it headed northward just offshore of the Delmarva Peninsula at 8 mph with top sustained winds of 45 mph, the National Hurricane Center reported. Fay was expected to bring 2 to 4 inches of rain, with the possibility of flash flooding in parts of the mid-Atlantic and southern New England, The US National Hurricane Center. That’s down from earlier forecasts of about 3 to 5 inches of rain. A tropical storm warning remains in effect from Cape May, New Jersey, to Watch Hill, Rhode Island.
Dow Jones reports that Chevron (NYSE:CVX) said it was beginning the startup Friday of a gasoline-making fluid catalytic cracking unit after maintenance at its Pasadena, Texas, refinery. In a statement to the Texas Commission on Environmental Quality, the refinery said the startup process could last until Tuesday. The 110,000-barrel-a-day refinery is in the Houston area.