The Energy Report 02/27/2020
47 and Counting
Oil Price traded into the $47 a barrel handle as it reports that the coronavirus hit 47 countries. Coincidence? I think not. The spread of the virus is spreading not only fear but oil demand destruction and horror thinking about potential demand destruction to come. Jet Fuel demand has taken a considerable hit, and according to the Energy Information Agency (EIA) is down 8% over a year ago. Now more flights canceled and OPEC plus Russia still thinking debating how to respond with production cuts, it is hard to make a strong case for a bottom, even though technically we should be near one.
Still no sign that Russia wants to join OPEC in a production cut. Reuter’s reported that “Russia is “very satisfied” with its cooperation with Saudi Arabia and wants to continue it within OPEC and non-OPEC frameworks, as well as bilaterally, Russian Energy Minister Alexander Novak. “We are very satisfied with the cooperation with our partners, Saudi Arabia, and naturally we want to continue to cooperate not only in the framework of multilateral relations – OPEC, but also bilaterally – we have a lot of joint projects,” he said. Novak added that Russia was sticking to its earlier forecast of a potential hit to global demand from the coronavirus outbreak in China and beyond, adding that estimates may change given that the flu-like virus is spreading in Europe.”
There were hopes that President Trump, in his press conference, could offer assurances that the virus was Under control. President Trump said the risk to Americans from the virus is “very low. He put Vice President Mike Pence in charge overseeing the coronavirus team. Trump wanted to reassure the American people that a significant outbreak in the U.S. is not a sure thing. President Trump said, “I don’t think it’s inevitable. It probably will. It possibly will. It could be at a very small level, or it could be at a larger level. Whatever happens, we’re totally prepared,” the President told reporters.
Yet oil demand destruction is real, and while we all know as the President said that this is going to end, the question is still when. Reuter reported that Reuters) – Tanker charter rates have plunged more than 80% as the coronavirus outbreak slams the brakes on major economies, costing the sector hundreds of millions of dollars in lost business, a senior shipping industry official said. While some of the revenue is gone for good, a trade rebound could put the sector back into calmer waters later this year, International Chamber of Shipping (ICS) Secretary-General Guy Platten told Reuters in an interview on Wednesday. The ICS is the primary trade association for merchant shipowners and operators, representing more than 80% of the world’s merchant fleet.
Platten called the outbreak of the COVID-19 virus “hugely disruptive” for the shipping sector, triggering a massive decrease of raw material imports in economic powerhouse China because factories had stopped and are only starting to recover, according to Reuters.
Demand fears overshadowed the EIA report that actually has some bullish elements to it, but not enough to overcome oil demand destruction fears. The EIA reported that crude oil inventories increased by only 500 thousand barrels from the previous week. That puts the U.S. supply 3% below the five year average for this time of year. Total motor gasoline inventories decreased by 2.7 million barrels last week and are about 2% above the five year average for this time of year. Finished gasoline and blending components inventories both decreased the previous week. Distillate fuel inventories fell by 2.1 million barrels last week and are about 5% below the five year average for this time of year. Demand-based on total products supplied over the last four-week period averaged 20.3 million barrels per day, down by 2.2% from the same period the previous year. Over the past four weeks, motor gasoline product supplied averaged 8.9 million barrels per day, up by 0.3% from the same period last year. Distillate fuel product supplied averaged 4.0 million barrels per day more than the past four weeks, down by 5.1% from the same period the previous year. Jet fuel product supplied was down 8.3% compared with the same four-week period last year
The EIA also reported that In 2019, U.S. annual wind generation exceeded hydroelectric generation for the first time, according to the U.S. Energy Information Administration’s Electric Power Monthly. Wind is now the top renewable source of electricity generation in the country, a position previously held by hydroelectricity.
Annual wind generation totaled 300 million megawatthours (MWh) in 2019, exceeding hydroelectric generation by 26 million MWh. Wind generation has increased steadily during the past decade, in part, because the Production Tax Credit (PTC), which drove wind capacity additions, was extended. Annual hydroelectric generation has fluctuated between 250 million MWh and 320 million MWh in the past decade, reflecting a stable capacity base and variable annual precipitation.
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