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Posted: 04/08/2020

Oil Market, Exchange Rate and Heating Oil Price Information July 2020

Goff Heating Oil Market Price Information

Oil Market, Exchange Rate and Heating Oil Price Information July 2020.

Brent Crude Dated ($ per Barrel)

Price at Start of Month: $42.61                Price at End of Month: $42.95

Highest Price in Month: $44.77                Lowest Price in Month: $42.06

Pound £ to US Dollar Rate $ Exchange Rate FT:

Start of Month: 1.2458                              End of Month: 1.3125

Kerosene (Heating Oil) Cargo Price $ per tonne       

Start of Month: $338.00                             End of Month: $342.75

Highest Price in Month: $357.75                            Lowest Price in Month: $336.50

Resulting in a Heating Oil Price (Pence Per Litre) Monthly range: 2.05 ppl

Market Commentary:

Citigroup: Oil Will Never Return To $100

Crude oil prices are unlikely to return to three-digit levels ever again, Citigroup commodity analysts said in a note, as quoted by Bloomberg.

The idea of oil at $100 or higher, “has far more fantasy than reality at its heart,” the Citi analysts wrote, adding that over the long term, $45 per barrel of Brent was a far more likely oil price scenario than $60 a barrel.

In more pessimistic news, the Citi analysts said, “Oil product demand growth will falter significantly, change its contours and never return to pre-covid-19 rates of growth.”

They are not alone in this view of oil product demand after the pandemic erased close to a third of global oil demand at its height. This demand has yet to recover, and many doubt it will recover fully to pre-pandemic levels.

Meanwhile, there are threats from supply, too. Saudi Arabia appears to have threatened fellow OPEC members that it will start a price war again if they don’t do more to fall within their production quota under the OPEC+ agreement aiming to remove 9.7 million bpd from the global supply until the end of this month.

Even though OPEC’s production last month fell to the lowest in 30 years, this may not be enough to spur a stronger recovery in oil prices. As a result, OPEC delegates told the Wall Street Journal that the cartel’s leader in all but name had told laggards it would open the taps if they didn’t fall in line.

Speaking of supply, Citi’s analysts noted in their forecast that with lower production costs generally, production would begin returning at levels of about $45 a barrel, which further made strong price rises even in the longer term unlikely.

Meanwhile, oil prices are again on the decline despite EIA’s inventory report, which estimated a sizeable drop in crude oil last week. The decline was driven by rekindled fears of a resurgence in Covid-19 cases, especially in the United States.

By Irina Slav on 2nd July 20 for Oilprice.com

 

Second Wave Of COVID-19 Won’t Crush Oil Prices

OPEC+ agreed on Wednesday to ease its self-imposed production cuts starting next month as the global economy slowly awakens from its deep Covid-19 slumber. The organization has been curtailing output since May by 9.7 million barrels per day, or ~10% of global supply, following a demand meltdown due to widespread lockdown but now plans to taper the cuts to just 7.7 million bpd until December. The oil markets are reacting negatively to the cartel’s latest move, with WTI price down 1.24% to $40.70/barrel at 7am CST on Thursday, while Brent crude has dipped 0.75% to trade at $43.46/barrel.

While these moves could be interpreted as normal market gyrations, they could also suggest that the market is concerned about this potential: OPEC+ may have rushed to lift the curbs especially with Covid-19 cases spiking again in the pivotal U.S. market.

How All 50 States Are Reopening (and Closing Again)--updated July 15

Source: The New York Times

Defeating the second wave

There are fears that the rollbacks could trigger another price slump if economies start to shut down again and demand nosedives.

Indeed, OPEC+ itself has acknowledged that rebalancing the markets again could be a tough call if a second wave of Covid-19 infections strikes.

The bad news: No less than 10 states in the United States, particularly states straddling the Sun Belt of Florida, Texas and Arizona have been forced to reverse course by closing certain counties or sectors statewide after recording a resurgence in cases just weeks after reopening. 

New infections across the country have been clocking in at ~60,000 a day, about double the rate recorded in April, and could exceed 100,000 a day as Anthony S. Fauci, the nation’s top infectious-diseases expert, had earlier warned. Active Covid-19 cases in the country have now surpassed 3.5 million with nearly 140,000 deaths.

There are fears that a similar trend could emerge in other large oil consumers such as India and Brazil. However, there are a couple of reasons why oil prices are not likely to crater to the levels they did in April.

First off, the initial health crisis appears  to be under a reasonable level of control in many countries, with China providing a blueprint for dealing with the so-called second wave of infections. China, one of the early epicenters of the crisis, appears to have quickly brought its second wave of Covid-19 under control by adopting the same measures that various U.S. states are adopting i.e. vigorous testing and re-imposing strict lockdown in areas or sectors where cases are spiking. In fact, some have argued that there is no second wave in the U.S. and the country is simply experiencing a continuation of the first wave.

Source: The Conversation

Second, the world now has a much better idea of how to deal with Covid-19 than it did four months ago, not to mention that biopharma companies such as Moderna Inc. (NASDAQ:MRNA) appear to be making serious inroads as far as finding a Covid-19 cure is concerned. 

 

MRNA stock has been on a tear after a study in the New England Journal of Medicine says the company's mRNA-1273 experimental vaccine for COVID-19 produced antibodies to the coronavirus in all 45 patients tested in an ongoing phase 1 trial. The neutralizing antibody levels produced in the test group were equivalent to the upper half of those seen in people who have become infected with the virus and recovered with mRNA-1273 generally safe and well-tolerated. 

 

Phase 2 data is expected sometime in August or September. Though still far from a done deal, the fact that 100% of the patients developed antibodies raises the odds for a successful outcome.

The markets tend to react positively to this kind of news.

Sticking to the rules

When OPEC+ first announced plans to cut production by an unprecedented 9.7 million barrels per day, there were widespread doubts whether members would comply. Those fears played out during the first month of the cuts when compliance clocked in at ~74%.

But with those first round of cuts having worked to stabilize the markets, OPEC+ members now appear a lot more serious about sticking to their commitments. 

During their latest meeting, Saudi Arabian Energy Minister Prince Abdulaziz bin Salman noted that only about 1.15 million b/d of production will be added to June’s production, or 43% less than the 2 million b/d headline figure, after countries that exceeded their May and June quotas by a combined 840, 000 b/d agreed to compensate during the current quarter.

With global oil demand still ~10% below pre-crisis levels and refiner margins still weak, OPEC+ will not be too eager for a repeat of the April fiasco.

Further, U.S. producers have also cut production sharply, with domestic crude supplies falling by 7.5M barrels for the week ending July 10 for an average decline of 2.1M barrels. The American Petroleum Institute(API) reported a large draw of 8.3 M barrels for the week ending July 10 with the Energy Information Administration(EIA) expected to show crude inventories fell by 2.1M barrels over the period. 

A lot could still happen between now and November 30 when OPEC+ has its next full meeting. But so far, it appears that oil producers have learned their lessons the hard way and will not be too keen to engage in a fight with market fundamentals any time soon.

By Alex Kimani - Jul 16, 2020 for Oilprice.com

Will Oil Demand Ever Reach Pre-Pandemic Levels?

The latest predictions from Citigroup paint a dire picture for the global energy industry, with analysts warning demand for refined oil may never recover to pre-pandemic levels. According to experts at the American multinational investment bank, the demand slump triggered by the coronavirus outbreak will have a devastating impact on worldwide consumption.

“Oil product demand growth will falter significantly, change its contours and never return to pre-covid-19 rates of growth,” reads the report issued by Citigroup.

Travel restrictions set to drive demand slump

With many experts warning international travel could be off the cards until 2023, demand for jet fuel is set to tumble. The COVID-19 pandemic has also forced companies to reassess the need for employee travel, instead resorting to digital meetings using platforms such as Skype and Zoom.

International travel isn’t the only industry set to take a hit, with domestic travel also limited in the face of local restrictions and lockdowns. The United States is currently bracing for a surge in COVID-19 cases following July 4 celebrations, with Melbourne also forced back into lockdown for six weeks in response to high levels of community transmission. In the report issued by Citigroup, analysts say situations such as these are just some of the powerful forces at play that will prevent oil demand from reaching pre-pandemic levels.

Citigroup says triple-figure oil a “fantasy”

The report comes in the wake of a warning issued by Royal Dutch Shell predicting a significant decrease in the value of its assets. While analysts had hoped oil could recover to at least US$60 a barrel, Citigroup says US$45 is a more realistic price point. Referring to hopes oil will rebound to the US$100 per barrel mark, Citigroup says this prediction “has far more fantasy than reality at its heart.”

In April, the World Oil Market report released by the International Energy Agency (IEA) warned oil demand was down by 29%. By the end of 2020, the IEA predicts a 9% year-on-year decrease. As well as a sharp decrease in demand, experts warn supply issues could emerge. Tensions are mounting between Saudi Arabia and fellow OPEC members, with the Kingdom threatening a price war if production quotas outlined by the OPEC+ agreement aren’t met. While total OPEC production recently slumped to the lowest levels seen in 30 years, there are fears wiping 9.7 million bpd off the market won’t be enough to coax oil back to US$65 a barrel levels, let along triple figures.

Oil Market Recovery Threatened By Weaker Fuel Demand

Gasoline demand appears to be weakening in some parts of the United States, as the coronavirus continues to spread. The states hardest hit by the surging number of infections are also some of the largest, with tens of millions of drivers.  Much of the country continues to see a slight uptick in gasoline consumption. But in Arizona, Texas and Florida, where the coronavirus is raging, a growing number of people are staying home. Cases are rising in more than 30 states.

Gasoline demand in the U.S. climbed back to 8.6 million barrels per day (mb/d) for the week ending on June 19, up from a low of 5 mb/d in early April. But demand slipped a bit by the end of June as the virus began to spread at a faster clip. On Wednesday, the EIA reported another increase in demand, although the report was offset by a rise in crude inventories, and the slightly muddying caveat that it was a holiday weekend. Gasoline demand is still roughly 1 mb/d below last year’s levels.

In other parts of the world, economies continue to rebound. Germany’s industrial activity picked up pace in June, as did manufacturing activity in China. Strict lockdowns in prior months helped dramatically lower the number of daily infections, and some economies have largely reopened.

But many parts of the U.S. have tried to return to “normal” without ever really getting the virus under control. “[T]oo much optimism at this stage could be premature with total cases in the US, particularly Texas and Florida, surpassing the 3 million mark yesterday, whereas active cases are nearing 1.6 million,” JBC Energy wrote in a note on Tuesday.

The virus also continues to spread in India and Brazil, among other parts of the world. “With global active cases globally slightly less than 4.5 million and showing no sign of a slowdown, we are increasingly seeing downside risk to our total product (particularly gasoline) demand forecast,” JBC added.

A day earlier, the energy firm cut its forecast for U.S. gasoline demand, calling the recovery “increasingly questionable.” Draconian lockdowns were unlikely, as there is almost no political appetite for strict stay-at-home orders, but nevertheless, the spread of the virus will take a toll as governments implement some restrictions and people voluntarily stay home. “[W]e expect demand declines to strengthen moderately through July,” with demand down by 350,000 bpd relative to a prior base case, JBC said.

Others saw a similar negative turn. Standard Chartered said that current crude oil prices “contain a lot of optimism.”

To be sure, the sharp decline in oil production has tightened up the market. Instead of supply and demand balancing at 100 mb/d, the market is now “balanced” at a level that is 10 percent smaller. In fact, demand could average around 89 mb/d in July, with supply at only 88 mb/d. The oil market has now reached a new “balance at the bottom,” according to Rystad Energy.

But even if the oil market is technically in a deficit, there is still a massive inventory overhang and the threat of another downturn because of the virus. “[W]e think normalisation is going take a long time, and the current drift down in demand data and a renewed drift down in demand forecasts will make that process even longer,” Standard Chartered analysts wrote in a note.

The inventory overhang would last until 2022, the bank added, but that really hinges on OPEC+ sticking with the production cuts until then.

The EIA put out its latest Short-Term Energy Outlook, in which it revised up its estimate for gasoline demand. It now sees 2020 gasoline consumption declining by 2.1 mb/d relative to 2019 levels, a slight improvement from June’s estimate of demand being down 2.3 mb/d.

But that sunnier outlook is at risk if the U.S. suffers another downturn.

“If crude stocks are growing now, while restrictions are loose, traders worry about what will happen to demand in the case serious lockdowns come back again. Stocks are already at quite high levels,” Louise Dickson, oil market analyst at Rystad Energy, said in a statement.

By Nick Cunningham of Oilprice.com

 

Oil Holds At 4-Month High Despite Jump In COVID-19 Cases

Oil prices jumped to a four-month high on Tuesday, rallying on hopes of economic stimulus. However, the uncontrolled spread of the coronavirus in the U.S. puts something of a ceiling on prices for the time being.

After several days of tough negotiations, the European Union agreed to a 750-billion-euro stimulus package, in a historic vote of confidence in the European project. For the first time, European countries will sell bonds collectively rather than on an individual basis, and funnel the proceeds to hard-hit countries, particularly in Southern Europe.

Meanwhile, in the U.S., Congress is set to begin negotiations on another massive stimulus package. The details remain subject to intense negotiations, but there is a broad consensus that both political parties want to pass another trillion-dollar package.

The oil markets welcomed the news, pushing up crude prices to the highest levels since March. Adding to the optimism was positive news on the vaccine front. A potential coronavirus vaccine developed by Oxford University and AstraZeneca demonstrated an immune response. Markets continue to price in optimism on vaccine progress.

Prices would be even higher if not the for the worsening spread of the of the coronavirus. The oil market fundamentals are increasingly bullish. “The global crude market is in deficit to the tune of 3.2 million bpd in July, and even with a tapering of OPEC+ cuts in August, will remain in deficit in August and September too of around 2.5 million bpd,” Bjornar Tonhaugen, head of oil markets at Rystad Energy, said in a statement.

“So the threat of a second wave of lockdowns is holding oil price gains back. An outright second wave of lockdowns will send oil prices lower,” Tonhaugen added.

U.S. gasoline demand is showing signs of weakening. In the week ending on July 10, demand dipped from the week before. Other data suggests the downward trend is more than a one-off: Florida, Texas and California, among a long list of other states, continue to suffer from a huge number of infections.

The U.S. is not alone. India now ranks third globally in cumulative infections. The latest data from India shows an 18 percent decline in diesel demand in the first half of July compared to the same period in June, according to JBC Energy. Roughly 30 percent of the country is in lockdown, affecting more than 400 million people.

“The key question now is how much longer governments will wait before implementing new lockdown measures, and just how strict these will be,” JBC Energy said in another note. “The US is also approaching the turning point where individual states will have to decide how much economic pain they are willing to take in order to slow the spread of the virus.”

But there are other reasons why even Covid-19 related concerns may not lead to a horrific downward spiral for oil prices. The U.S. shale industry is showing no signs of bouncing back, despite the fact that prices have firmed up at $40. The rig count meltdown has slowed to a trickle, but drillers have no appetite to throw more rigs back into the field. Even in the EIA’s assessment, which typically tends to be optimistic on production, U.S. output will continue to erode until the second quarter of 2021.

At the same time, OPEC+ has hung together, improving compliance with the production cuts even as they move to add supply back onto the market. The cohesion bodes well for the group sticking with the plan in the months ahead, rather then returning to some sort of a price war.

By Nick Cunningham - Jul 22, 2020 for Oilprice.com

Why Oil Remains Stuck At $40

Oil prices posted gains once again on Wednesday on the back of bullish data from the EIA, but analysts are warning that plenty of downside risks remain.  The EIA reported a huge drawdown in crude inventories on Wednesday, with a drop of 10.6 million barrels. That was enough to lift crude prices.

But several analysts argued this week that the bigger picture is murkier, with economic and pandemic-related risks looming. “While upwards momentum has stalled over the past month, we still think prices are overdue a downwards correction to reflect the flattening of oil demand recovery and the darkening of economic prospects,” Standard Chartered analysts wrote in a note. The investment bank added that “consensus views” on the oil market balances in the second half of the year have “weakened significantly over the past month.”

“We now only rarely hear talk of V-shaped demand recoveries and extremely tight markets, the views that allowed Brent to rally beyond USD 40/bbl,” Standard Chartered said. “Instead the main talk among traders seems to have shifted to precisely how much demand will disappoint and how long will it take to normalise inventories.”

That assessment stands in stark contrast to the behavior of crude prices in the last six weeks. Volatility has vanished, with WTI remaining rooted at about $40 per barrel, and Brent a few dollars more. Prices have been stuck at those levels even as the optimism surrounding economic re-openings has dissipated. The only sign of a more pessimistic outlook creeping into oil markets is the shift from backwardation towards contango. As Standard Chartered pointed out, the discount for front-month Brent contracts relative to fourth-month Brent contracts has widened over the course of July.

“In our view, Brent above USD 40/bbl seems increasingly discordant with the flow of news regarding the coronavirus pandemic and the outlook for the global economy, and particularly jars with increasingly bearish oil market fundamentals,” Standard Chartered analyst concluded.

However, on the flip side, U.S. gasoline demand jumped in latest EIA data through July 24, rising to 8.8 million barrels per day (mb/d), ending several weeks of decline, at least temporarily. That level of consumption is the highest in four months.

Moreover, the surge in cases in the United States has eased ever-so-slightly, with key states such as Texas, Florida and California seeing infections coming down from recent peaks. “This could be a sign of retreating demand risks from possible slowdowns or targeted lockdowns, but the prospect of a second wave later in the year still presents looming risks,” ClearView Energy Partners wrote in a note to clients.

The second wave in the U.S. may be plateauing for the time being, and the rebound in gasoline demand combined with the drawdown in inventories boosted oil prices midweek.

But the sentiment shifts from week to week, and it is not clear that the prevailing wisdom that oil markets would be in a substantial supply/demand deficit in the second half of the year will pan out. On Tuesday, Rystad Energy warned that the loosening of the OPEC+ production cuts could lead to a renewed surplus for the next four months.

Global supply is expected to increase rather significantly over the next several months, outpacing expected demand increases. “OPEC’s experiment to increase production from August could backfire as we are still nowhere near out of the woods yet in terms of oil demand. The overall liquids market will flip back into a mini-supply glut and a swing into deficit will not happen again until December 2020,” Bjornar Tonhaugen, Rystad Energy’s Head of Oil Market Research, said in a statement on Tuesday.

On Wednesday, Tonhaugen stuck with that thesis, despite the price increase on the back of EIA data. Rystad pointed to the unexpected rise in infections in Europe, a negative development that has yet to be factored in to market expectations. In fact, data from Europe shows a decline in road traffic as virus cases rise. “[D]on’t be fooled by today’s price gains, they may be cancelled as soon as production exceeds demand, which is around the corner, and as this is expected to last for some time, traders will race to price it in,” Tonhaugen said.

By Nick Cunningham - Jul 29, 2020, of Oilprice.com

 

Additional Oil Market commentary & Market Data available from the BBC here: Market Data

The Office for National Statistics record the price of heating oil and publish monthly updates on the average delivered cost of a domestic delivery of 1000 litres of kerosene in the UK . The information held by the ONS is freely available online and can be found here:  ONS Price of heating oil