Energy Report: Oil Indicator Optimism

Oil prices hit a new nine-month high as Asian oil demand is exploding, and the Fed is saying they still have our back. The Energy Information Administration (EIA) also helped by showing a crude draw of 3.1 million barrels and a hefty 793.000 million barrel jump in U.S. oil exports, and a significant 1.1 million barrel a day drop in oil imports.

The recent crude oil moves seemed to foreshadow what the Fed said yesterday about the U.S. economy and jobs market. The economic outlook and jobs are improving, leading to higher energy prices. The Fed was even optimistic about U.S. growth, raising its 2021 real GDP forecast to 4.2% from 4.0%. They markedly improved their outlook for the unemployment rate. They lowered their forecast from 6.7% down from a previous 7.6% projection in September.

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The crude oil market is moving to post-pandemic highs because we are starting to price in a strong rebound in the U.S. economy. Yet it is China and India that is tightening supplies in Asia. Record-breaking refinery runs in China and India refiners running at full capacity show that global demand will recover much faster than many had predicted. By the way, a lot of that oil that China and India are refining is coming from the U.S. shale patch.

U.S gasoline demand ticked back up. The weekly implied market jumped 5% to 7.98 million b/d, yet it was 15% behind year-ago levels, up from around 14% behind year-ago levels during the week prior. The four-week moving average of implied demand fell for a fifth straight week and was the lowest since the week ended June 19 after falling 1% to 7.92 million barrels per day.

Distillate fuel inventories increased by 0.2 million barrels last week and are about 11% above the five-year average for this time of year. S&P Global Platts says that refinery net crude inputs fell 250,000 b/d to 14.18 million b/d amid a 0.8 percentage point pullback in refinery utilization to 79.1% of total capacity. Crude inputs were nearly 16% behind the five-year average, but despite the week-on-week decline, they were still generally trending higher, and the four-week moving average edged up to 14.22 million b/d, a 15-week high.

The trends of improving runs and demand are reasons why product prices are looking cheap. The complex looks strong and confirms what we have been saying. The U.S. is exporting cleaner air. While there is a big focus on reducing greenhouse gas emissions, the best way to do that quickly is to replace coal plants with natural gas. Of course, to do that, you need natural gas, and many countries right now do not have enough to meet their needs! Well, the U.S. frackers are coming to the rescue!

The EIA reported that LNG (Liquified Natural Gas) exports from the U.S. are at a record high. The EIA said that "During the summer of 2020, monthly exports of liquefied natural gas (LNG) from the United States were the lowest in 26 months but have since increased. In November, estimated LNG exports surpassed the previous record set in January 2020. In the December 2020 Short-Term Energy Outlook, the U.S. Energy Information Administration (EIA) estimated that November U.S. LNG exports reached 9.4 billion cubic feet per day (Bcf/d), which was 93% of peak LNG export capacity utilization. Several factors contributed to the increase in U.S. LNG exports in recent months. International natural gas and LNG prices increased in Asia and Europe because global natural gas demand increased after COVID-19 restrictions were eased and global LNG supply fell due to unplanned outages at LNG export facilities in Australia, Malaysia, Qatar, Norway, Nigeria, and Trinidad and Tobago. In addition, 2.7 Bcf/d of new U.S. LNG export capacity was added in 2020, and several U.S. LNG terminals affected by hurricanes and annual maintenance have resumed LNG shipments.