The Energy Report 05/22/2020

The Summer Driving Season Begins

Once again, the oil market corrects going into a holiday weekend. This time it is Memorial Day before it was Thanksgiving and Christmas, and I could go on. The tendency of the oil market to correct and top often happens ahead of holiday weekends. Still, this market deserves to correct. The historic turnaround from sub-zero pricing to an incredible comeback, it only stands to reason that the market may want to level off and consulate as it tries to judge demand and the impact on what is the traditional start of the Summer Driving Season, Memorial Day.

 As oil watchers, know Memorial Day weekend is often a predictor of what we might expect from consumer gas demand for the rest of the summer. Assuming, of course, it does not rain. This year the demand numbers are probably going to be more critical than ever as we will want to see gasoline consumer behavior and their desire to travel and celebrate the holiday as states start to reopen their economies. Reports say that holiday travel will be down by a third, almost a record low, but while we should see more of an impact on jet fuel demand, we expect that gasoline demand should bounce back and surprise to the upside.

Oil traders are looking to China and are getting mixed signals. While Chinese oil demand is almost back to year-ago levels, there are still concerns about the Chinese economy.  China announced that it would abandon its long-term policy of setting a GDP target amid what they say is ‘great uncertainty’ over the virus. China also announced plans to impose a national security law on Hong Kong. They would increase tensions with the U.S. that are already raw because China hid details about the coronavirus.

Yet despite this, Bloomberg News reports that “China reiterated a pledge to implement the first phase of its trade deal with the U.S. despite setbacks from the coronavirus outbreak, and as tensions escalate between the world’s two biggest economies. “We will work with the United States to implement the phase one China-U.S. economic and trade agreement,” Premier Li Keqiang told an annual gathering of lawmakers in Beijing on Friday. “China will continue to boost economic and trade cooperation with other countries to deliver mutual benefits.”

And in the big picture, will it impact China’s oil demand?  Argus Media reports that the resurgence of Chinese buying interest has sustained a dramatic rise in values for Africa crude oil grades, while some Indian and European demand recovery has started to push Nigerian differentials back to premiums to North Sea.

We are seeing reports that China’s Shandong independent ‘teapot” refineries rate  are at an all-time high.

Reuters is reporting that “China today said it will bolster the capacity of the country’s energy reserves and offer lower gas and electricity charges to key industries, as it looks to ensure energy supply and offset the impact of the coronavirus pandemic. In energy announcements on the first day of the parliament, known as the National People’s Congress (NPC), authorities also pledged to boost the country’s oil and gas network and continue to support exploration for unconventional gas reserves. The National Development and Reform Commission (NDRC) said in a statement it would push forward construction of crude oil reserves. The coronavirus pandemic has led to a slump in demand for crude oil, with insufficient storage capacity worldwide.  So to think that China oil demand is going to go way is misguided.

Remember to say a prayer and remember all of those who gave all so we can live in peace. God bless them, and God bless their families and God Bless America.

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