The Energy Report 01/30/20

Global Alarm

Alarm bells are going off in global markets after the World Health Organization (WHO) is saying they deeply regret calling the outbreak of the Coronavirus moderate. This comes after reports of infections in India and  a slightly dovish Fed Chairman Jerome Powell said he is still rooting for inflation but also acknowledged that the coronavirus would likely hit the Chinese economy. Powel said that, “We are very carefully monitoring the situation. There will clearly be implications at least in the near term for Chinese output.”

DW News reported, “The whole world needs to be on alert” to fight the coronavirus, the head of the World Health Organization’s Health Emergencies Program has said. Dr. Mike Ryan praised China’s response to the deadly outbreak, saying: “The challenge is great but the response has been massive.” The WHO will meet today to discuss whether the virus constitutes a global health emergency.”

This report is raising fears that the virus is much worse than official Chinese channels are telling us. If that fear permeates the public in other parts of the world, it could be a real risk to global economic growth. The market wants to look beyond this but it needs to get a real sense as to whether they can get the coronavirus contained.

For oil, the perceived increased risk from the virus will cause another hit to global demand. The USA Today reported that, “Delta Air Lines on Wednesday joined domestic competitors American and United in scaling back flights between the U.S. and China in response to a growing and deadly coronavirus outbreak. The coronavirus has sickened more than 6,000 and killed at least 132 in China. The airline said it would cut its weekly flights in half between the two countries, from 42 to 21, beginning Feb. 6 and lasting through April 30. That period lasts longer than American’s and United’s. American’s suspension announced earlier Wednesday, lasts nearly seven weeks. On Tuesday, United said it would cut 24 flights between the U.S. and China for the first week of February. Delta’s cuts include service between Beijing and Detroit and Seattle, as well as between Shanghai and Los Angeles, Seattle, Detroit and Atlanta. Rather than operate daily, those flights will operate three to four times a week; the airline said as reported by USA Today.

U.S. firms in China are taking action to protect their employees from the virus. Tesla, Amazon, Microsoft, Starbucks, McDonalds are all posting less travel to China, as well as less demand for oil.

Corna virus fears overshadow good news on the energy front. For the first time in 2020, the U.S. is a net energy exporter. Yet a surprise build in crude stocks added to the bearish mood. The EIA reported that U.S. commercial crude oil inventories (excluding those in the Strategic Petroleum Reserve) increased by 3.5 million barrels from the previous week. At 431.7 million barrels, U.S. crude oil inventories are about 2% below the five year average for this time of year.

Total motor gasoline inventories increased by 1.2 million barrels last week and are about 5% above the five year average for this time of year. Finished gasoline inventories decreased while blending components inventories increased last week. Distillate fuel inventories fell by 1.3 million barrels last week and are about 3% below the five year average for this time of year.

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In case you missed it! Phil’s guest appearance on the McKeany-Flavell Hot Commodity Podcast last Friday, September 20th talking about current energy market dynamics. LISTEN HERE!

Phil Flynn

The PRICE Futures Group

Senior Market Analyst & Author of The Energy Report

Contributor to FOX Business Network

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