The Energy Report 02/18/2020

An Apple a Day!

The Energy Report Tuesday, February 18, 2020

An Apple a Day

Oil Prices are giving up gains and turned lower after Apple will miss  its second-quarter forecast for revenue. They pointed to supply issues for  iPhones and lower sales in China as the coronavirus shut down factories and stores. They see a 4 billion drop from $67 billion in revenue to $63.  This caused oil to fall because they are worried that this may be a case of an Apple-like warning a day may keep stock buyers away. They say that Apple may not fall from the tree, but a warning  is the warning by Apple really a reason to get bearish oil. Maybe for the short term but overall probably not.

Oil prices were in recovery modes in hopes that the Coronavirus might not be as deadly as previous viruses. Yet the reality that companies are already hurting put a damper on  energy demand, and we are starting to see how bad that might be.

On the   backend, they will be pent up demand for oil as companies like Apple have to kick it into high gear to get things back to normal. That should provide a supply boost. Besides, the market should not be that surprised by Apple, and they should not be surprised when other companies offer similar warnings. We might have to get ready for an apple a day like Walmart that had disappointing earnings.

Yet are these warnings in the rearview mirror? We already have priced in massive demand destruction in oil. In fact, in many cases, it does not even demand destruction per se, but oil demand delayed.

OPEC is still trying to finalize its production cut with Russia. Russia’s Alexander Novak says that Russia is still  in talks with OPEC+.

On top of that, the civil war in Libya is still cutting oil exports. Reports today that there is a “Tripoli port coming under intense artillery bombardment from The Libyan National Army “LNA” forces. Reports say that shells are  landing near densely populated areas of the old city and major oil company HQs.”

Interestingly Bloomberg News reported that  sudden oil buying spree by China’s independent refiners had taken Asian traders by surprise. “After weeks of production cuts, cargo deferrals and cancellations because of the deepening impact of coronavirus on Chinese crude demand, companies including Shandong Shouguang Luqing Petrochemical Co., Shandong Huifeng Petroleum Chemical Co., and Sinochem Hongrun Petrochemical Co. have returned to the market in a big way.

They’re all non-state-owned refiners, known as teapots, from the eastern province of Shandong. Until recently, this corner of the industry appeared to be doing everything to avoid buying crude, including cutting processing rates.

Natural Gas get sa bounce on a cold blast Buy PUTS.

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