Energy Report: Looking For Light

Oil is starting to find the light at the end of the COVID 19 and stimulus tunnel. Oil rallied despite a negative American Petroleum Institute (API) report on more positive vaccine news in the U.S. and China and a $916 billion coronavirus relief offer to Democrats from the Trump administration. Oil also has a pop on reports that militants attacked two Iraqi oil wells producing about 2000 barrels of oil per day. The wells were in the Khabbaz field but should have zero impact on Iraqi oil exports.

The API reported that crude oil inventories rose by 1.141 million barrels despite a 1.845 million barrel draw in Cushing, Oklahoma. Yet a giant leap in gasoline supply to the tune of 6.442 million barrels and a 2.316 million barrel increase in distillate weighed on prices as Thanksgiving day travel came in well short of what some had expected. Yet the trend in oil continues to work higher as the curve is suggesting.

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We have been riding the wave with oil still trending higher. We are on a path to reduce the global oil overhang, and that should keep the trend intact.

Natural gas is trying to bottom after warm weather hit prices hard. John Kemp at Reuters wrote that “U.S. natural gas prices have tumbled since the start of November as persistent mild weather has caused inventories to remain high rather than drawing down in line with seasonal trends. Futures prices for gas delivered to Henry Hub in January 2021 have fallen to just over $2.40 per million British thermal units, down from almost $3.50 at the end of October. And the six-month calendar spread between futures contracts with deliveries in January and July has slumped into a contango of almost 13 cents, from a backwardation of over 40 cents.

Lower futures prices will encourage maximum gas burn by U.S. power producers, mostly at the expense of coal, while the contango will pay for higher stocks to be carried over until next summer.

The Lower 48 states are now roughly a quarter of the way through the winter heating season, based on average population-weighted heating demand over three decades between 1981 and 2010. 

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