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Posted: 09/07/2020

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

Goff Heating Oil Market Price Information

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

Brent Crude Dated ($ per Barrel)

Price at Start of Month: $35.48                Price at End of Month: $42.61

Highest Price in Month: $43.64                Lowest Price in Month: $35.48

Pound £ to US Dollar Rate $ Exchange Rate FT:

Start of Month: 1.2483                              End of Month: 1.2458

Kerosene (Heating Oil) Cargo Price $ per tonne       

Start of Month: $271.25                             End of Month: $334.50

Highest Price in Month: $351.75                            Lowest Price in Month: $271.25

Resulting in a Heating Oil Price (Pence Per Litre) Monthly range: 5.37 ppl

 

Market Commentary:

$35 Brent: Goldman Sachs Turns Bearish On Oil

The relief rally in oil may be coming to an end as oil market fundamentals are turning bearish once again and pointing to Brent Crude slipping back to $35 in the short term, Goldman Sachs said on Monday, citing still uncertain demand recovery and returning production from the U.S. and Libya.

Despite the recent optimism that supply cuts from OPEC+ and economics-driven curtailments in North America will combine with rebound in demand, Goldman Sachs warns that there are four key reasons why oil prices are in for a pullback in the coming weeks, according to a note from the bank’s Senior Commodity Strategist Damien Courvalin cited by ZeroHedge.

In early May, Goldman Sachs expected that oil demand could rebound enough to exceed supply by the end of May.

But now, “demand expectations are running ahead of a more gradual and still uncertain rebound,” according to the Wall Street bank.

The other three key reasons for a pause in the oil rally are U.S. shale and Libya restarting some production, prices closing in on levels where Chinese opportunistic oil buying would slow, and a still massive 1-billion-barrel overhang in global oil inventories, Goldman Sachs said.

Some U.S. shale producers are bringing back shut-in production this month as prices rallied in May, while Libya has just confirmed that it restarted its largest oilfield, Sharara, after nearly six months of blockades.  

“With OPEC’s latest cut already more than priced in, we now forecast a pull-back in prices in coming weeks with our short-term Brent forecast of $35/bbl vs. spot prices of $43/bbl. Just as strengthening physical oil prices led us to turn constructive on the oil market on May 1, very poor refining margins and the recent sharp decline in US crude bases now comfort us in our sequentially bearish outlook,” Goldman said today.

Morgan Stanley also warned on Monday that oil prices have likely risen too fast too soon, as the market was focused on supply cuts, while global oil demand may not return to pre-COVID-19 levels before the end of 2021.

As of 10:00 a.m. EDT, oil prices had erased earlier gains for the day and were down, with WTI Crude dropping 1.52 percent at $38.93, and Brent Crude trading down 1.28 percent at $41.72.

By Tsvetana Paraskova for Oilprice.com

However a different commentator on the same website suggests that Covid-19 is to blame:

Oil Prices Crash On Second Wave Of COVID-19

Oil has had a turbulent year. Crude prices went negative for the first time in history, followed by one of the biggest rallies the industry has ever seen. And now, just when the market is starting to seem somewhat stable, COVID-19 strikes again.

A resurgence of COVID cases in the United States and a gloomy economic forecast from Federal Reserve Chair Jerome Powell has investors scrambling, with oil prices on track to hit their biggest daily decline since April 27th. Once again, oversupply and lack of demand have taken center stage.

Yesterday, the EIA reported that U.S. oil inventories rose by 5.7 million barrels, defying predictions of a 1.45 million barrel build. Adding even more pressure to oil prices, the U.S. Federal Reserve noted that unemployment rates were set to settle near 9.3% by the end of the year, adding that it could take years to return to pre-pandemic employment levels.

COVID-19 has been the main culprit in the market collapse. While many states have already reopened with some strict guidelines, things don't seem to be going as planned.

It took the United States nearly three months to hit the 1 million confirmed cases mark, yet it only to six weeks to double it. On Wednesday, the U.S. crossed the 2 million mark, with many states reporting significant spikes following attempts to ease lockdown restrictions.

As of this morning, the U.S. has reported over 113,000 COVID-related deaths, and healthcare experts across the globe are warning that the pandemic is nowhere near over, encouraging individuals to maintain social-distancing practices and to wear face masks in public.

Though COVID-19 has taken a clear toll on global economies, some suggest the oil market, in particular, simply rose too quickly.

Jeffrey Halley, senior market analyst, Asia-Pacific at OANDA said "The fall in oil prices is just as much about timing as COVID-19 cases though, coming as both equities and oil were looking overbought on any measure of short-term indicator," adding, "Some sort of correction had been overdue after the massive increase in speculative long positioning, and oil's breath-taking rally over the past month."

By Charles Kennedy for Oilprice.com

But overall there is no denying that with only half of the year gone it’s already;

The Most Dramatic Year In The History Of Oil

There are very few industries in the world that have been hit as hard or are set to face as many consequences as the oil and gas industry in 2020. In a recent report, Fitch Ratings forecast that oil and gas exploration and production companies would lose $1.8 trillion in revenues this year, which is six times more than the retail sector is set to lose. But the long-term consequences are going to be even more devastating. Perhaps the most visible change taking place in the oil and gas industry is the drastic cost-cutting measures being taken by the oil majors. BP has been forced to cut 10,000 jobs, or 15 percent of its workforce, as it tries to control costs in this new low oil price environment. Schlumberger had already slashed salaries and cut jobs in late March, while Shell and Chevron have announced plans to shrink their workforces.

And it isn’t just in the workforce where we are seeing unprecedented cuts. Shell’s decision to cut its dividend for the first time since 1945 was probably the single largest indicator of the long-term impact this pandemic will have on the oil industry. Shell and its fellow oil majors have prided themselves on paying out dividends regardless of market conditions in order to keep their shareholders happy. Its decision to cut its dividends marks a shift in strategy that suggests the oil major is now determined to cut its debt going forward and focus on financial sustainability rather than just pleasing shareholders.

It remains unclear if oil demand will ever return to pre-pandemic levels. From the destruction of the aviation industry to the transformation of workplace dynamics reducing daily travel and governmental pushes for renewable energy, oil demand is being attacked on all sides due to COVID-19. The oil majors seem to have recognized this global shift and are determined to make their operations as lean and sustainable as possible.

2020 is shaping up to be the most dramatic year in the history of oil markets, with a decade’s worth of change seeming to be taking place in just 365 days.

By Charles Kennedy

This raises a further challanging question - with so much change and chaos why are the markets so optimistic?

Oil Market Optimism Is Entirely Misplaced

  • - The recent optimism in oil markets has left many analysts scratching their heads, with no real fundamental reason for the shift in sentiment.

  • - Demand projections that suggest Asia or the world economy will be moving back to pre-pandemic levels anytime soon are laughable.

  • - The only justifiable optimism for oil markets at the moment is the optimism surrounding 2021 when we will likely see a monumental supply crunch.

Optimism is supposedly back in oil markets, with the Global Research team at Bank of America lifting its oil price forecast for this year and next as demand recovers from coronavirus-linked shutdowns, the OPEC+ output cut deal curtails supply, and producers slash capital expenditure. The bank now sees Brent crude oil averaging $43.70 per barrel in 2020, up from a previous estimate of $37. In 2021 and 2022, the bank forecasts average prices of $50 and $55 a barrel respectively. BofA also forecast that “a pattern of falling inventories across most regions should emerge as we move into H2 2020. As a result, we expect the full Brent crude oil curve to return into backwardation by year-end”.  Norwegian consultancy Rystad Energy, however, has warned that the downside risk in oil markets is still very much alive. In its weekly webinar, Rystad’s Head of Oil Markets, Bjornar Tonhaugen stated that “Brent prompt futures are under pressure this morning with bearish traders selling below US$40, in a reminder that not all is well yet in the market”. He also indicated that while mainstream analysts are optimistic and see a recovery and upward potential for oil, the short-term reality is far from certain.

When looking at the foggy picture currently being painted by the news, publications, and facts on the ground, the only real conclusion that can be drawn is that the ongoing price rally is not yet based on market fundamentals. The ongoing demand hike, as shown by some analysis in Asia, is not based on recovering demand of consumers or industry, but largely caused by refinery runs that are taking advantage of the relatively low oil prices. Using oil in storage to produce oil products is a normal economic phenomenon, preparing higher-margin products for the future while also opening up some additional storage space for new imports.

Overall, then, optimism should be tempered, as there are not yet any real signs of improvement available in the major economic regions, especially in the U.S. and EU, that would suggest a move towards a pre-coronavirus economy. Oil market analysts and investors seem to forget that current economic figures, which are already extremely bad, are possibly only the tip of the iceberg. When looking at the economic situation in the Eurozone-area, and the EU in general, positive economic figures are largely the result of governmental financial support and will worsen when that support is reduced. Current stimulus packages are not sustainable, and a high level of bankruptcies and lay-offs are to be expected before the end of the summer. 

The economic backbone of major industries in Europe, automotive, airlines, tourism, and even manufacturing, is facing a bleak and very insecure couple of years. Demand for crude oil and products will be hit hard if the expected rise in unemployment becomes a reality. The U.S. and other major markets are not looking any better. The current U.S. stimulus packages are propping up some sectors of the economy, while already historically high unemployment figures will lead to foreclosures, higher credit debts, and failed repayments of car loans, etc. Demand for crude oil, in the world’s second-largest consuming market, seems to be heading towards a cliff.

Asian figures, which are being presented by several parties as looking promising, are again unlikely to meet expectations. Chinese production figures and GDP growth were already a subject of much debate before the global pandemic, and now it is going to suffer from lower demand in trade and possible political conflicts. A combination of trade wars, the EU’s reluctancy to keep its doors open to China’s economic might, and a continuing struggle to stave off an internal economic crisis, does not bode well for the Asian giant. Demand for China’s products is down and will continue to decline if its main clients (the E.U. and U.S.) are hit by an economic recession.

Even within the physical oil market itself, it seems that optimism is being misplaced. OPEC+  production cuts are holding, but compliance is at less than 90 percent, which means the main producers are still hitting the markets with additional unwanted oil volumes. Saudi Arabia, UAE, and Kuwait are keeping to their commitments, but Iraq and others are struggling. At the same time, a prolonged production cut strategy is no longer sustainable for several producers as their economies are in shambles, and unrest is brewing. Non-OPEC producers are also looking for a way out, and Russia has indicated that it doesn’t see any long-term options for a production cut. U.S. oil production, which has been hit by both COVID and an OPEC+ oil price war, is currently struggling but has the potential to come back online quickly. If oil prices remain in the $35-40 per barrel range, we will see a re-emergence of several shale oil players and additional (unwanted) volumes in the market. Furthermore, global crude oil storage volumes are still at historically high levels. Last week’s optimistic forecasts of draws of storage volumes is likely a one-off. The fact remains that there is still too much oil available, but SPRs are being used to improve storage figures.

Another reason for our overly optimistic outlook is that the profit strategy of downstream companies has resulted in higher volumes of product in storage, as demand for products is low. This can be seen in U.S. crude stockpiles which were reported to have grown by more than expected, adding to worries about oversupply.  American Petroleum Institute (API) reported that U.S. crude inventories rose by 1.7 million barrels last week, well ahead of analysts’ expectations for a 300,000-barrel build. While product volumes showed a storage draw, optimism here is based on the fact that fuel consumption is picking up as some economies ease lockdown measures. When looking at the real figures, demand for products is still way below normal figures for the same time last year. Another major worry is that China, the world’s top crude importer, is also expected to slow crude imports in the third quarter, after record purchases in recent months, as higher oil prices hurt demand and refiners worry about a second virus outbreak.

Looking at fundamentals, combined with increased economic and geopolitical unrest globally, there is no real justification for oil market optimism in 2020. Both the summer and autumn of 2020 will be volatile periods for oil markets, with a possible economic recession of an unknown magnitude hitting the global economy. Optimism should instead be pointed towards 2021. A combination of low investments upstream, combined with potential new unrest in MENA (Libya-Iraq) or removal of the weak parties in upstream, will lead to a supply crisis. Beneath the fog of the current demand discussions and fake optimism about the economic growth of Asia and other regions, there is a supply crisis forming which will hit the market hard. The year 2021 will recharge oil and gas with a bang, as we jump from a demand-driven market to a supply-driven situation. Prices will increase, even with a global economic crisis, but revenues will be distributed to new power players that will replace the current U.S.-E.U. centric oil and gas upstream sector. An average crude oil price (Brent) of above $40 per barrel is wishful thinking in 2020. We may witness hikes, but general fundamentals are showing a $30-$34 range rather than a $40-45.

By Cyril Widdershoven for Oilprice.com

 

Tighter Markets End Lucrative Oil Trade

From a super contango in April, the Brent Crude futures curve has flattened and flipped to backwardation for the nearest months, wiping out was is seen as one of the most lucrative oil trades Production cuts from Saudi Arabia to the U.S. shale patch, combined with recovering oil demand, have changed in recent weeks the oil futures curve more to the liking of the OPEC+ group. 

From a super contango in April, the Brent Crude futures curve has flattened and flipped to backwardation for the nearest months, wiping out the most significant financial incentive for oil trading houses to profit from the price structure when oil demand crashes.  

During the ‘peak lockdown’ period when every major economy except China was under lockdown in late March and early April, the oil market was in a state of super contango. In this market situation, front-month prices were much lower than prices in future months, pointing to a crude oil oversupply and making storing oil for future sales profitable. Traders rushed to charter supertankers for floating storage for several months to a year so they could sell the oil at higher prices later. 

In the middle of June, production cuts and an uptick in oil demand helped the Brent Crude price structure flip to backwardation, signaling a tightening of the physical oil market.

Backwardation – the opposite of contango – is the market situation that typically occurs at times of market deficit. In backwardation, prices for front-month contracts are higher than the ones further out in time.

Backwardation is currently only seen for the next two to three months, but analysts expect the full Brent futures curve to be in backwardation by the end of the year thanks to recovering demand. Bank of America (BofA) Global Research, for example, sees inventories in most regions beginning to draw down in the second half of this year, and the full Brent futures curve could flip by the end of the year to backwardation.

A backwardated futures curve is definitely the preferred market structure for OPEC and its allies, which rely on higher front-month prices to help draw down excess inventories and record floating storage, which would push oil prices higher if demand continues to improve.

At the same time, the new shape of the oil futures curve is already discouraging what was the most lucrative trade in the oil market two months ago at the peak of the demand loss.

“Quite simply the contango is no longer there, so it does not make any economic sense to enter into a new floating storage trade, unless the deal was locked in when the contango was sufficient to cover freight costs,” Richard Matthews, an analyst who monitors the trade at E.A. Gibson Shipbrokers, told Bloomberg. 

This new phase in the oil market is in stark contrast to the wild rush for chartering oil tankers, either for floating storage incentivized by the super contango, or for the record volumes of Saudi oil that flooded the market in April.

Floating storage has started to recede from record-highs in April in almost every region as demand began to recover from the record plunge.

According to estimates from the International Energy Agency (IEA), floating storage of crude oil dropped in May by 6.4 million barrels to 165.8 million barrels, from its all-time high of 172.2 million barrels in April.

Estimates by Bloomberg showed earlier this month that floating storage of North Sea oil had started to shrink as most of Europe lifted their lockdowns.

Tanker operator International Seaways said last week that it estimates 160-180 million barrels are being stored on ships currently. The strong oil contango earlier this year made it profitable to store oil, “creating a demand for time chartered ships for storage, further reducing ship supply and increasing rates,” the tanker operator said in a presentation to its annual meeting of stockholders.

In recent weeks, however, the contango has decreased, and the short-term floating storage of crude oil is declining, International Seaways notes.

For tanker owners, the vanishing of the contango and the record cuts from OPEC+ is bad news for tanker demand and rates. They knew that the super trades with the super contango would not last long and would have to eventually face a new market reality with OPEC+ withholding supply to decrease the glut and increase oil prices.

For OPEC+ and for tanker operators alike, continuous demand recovery would be excellent news – if it holds.

By Tsvetana Paraskova for 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