fbpx

The energy sector is reeling. How much pain is ahead?

 In Newsletter

Issue 139
Assets Covered: WTI crude oil futures, NYMEX gasoline futures, NYMEX natural gas futures

 

The energy sector has had a rough year. Remember when WTI crude traded above $63 in early January? Good times. Just a few months later, WTI’s breathtaking fall to -$37.63 (that’s negative) underscored just how much pain markets felt in the dark days of April. The year’s not over yet and the energy sector has lost nearly 120,000 jobs (15.5% of the workforce).

 

We’ve had relief since June. Over the summer, WTI has traded within a $5 band around $41. Brent is about the same. Crude markets are eerily flat. Last week’s US Energy Information Administration report showed a crude draw of 1.6m barrels, but this was largely on lower imports rather than rising consumption. For now, the market is moving toward balance, but we’re not quite there yet.

 

In our recent Quick Hit interview Tracy Shuchart said:

“…from what I’m seeing, the fundamentals are improving…. I look at driving patterns not only in the States but driving patterns in the world. I look at airlines and things of that nature and we are seeing a slight improvement. Everybody’s looking for a big crash in oil prices again but I don’t foresee that at this point. Unless, obviously, something fundamental changes, like the whole world goes on a lockdown again or some unforeseen event happens. But right now, the crude oil market looks pretty strong. We’re still over supplied but we’re working off that oversupply.”

 

Considering the dramatic events in 2020, that’s a pretty good place to be. Shuchart goes on to say that we may see some upward pressure on crude next year: ”Especially going forward into 2021, when that supply really starts to be worked off, then we have a Capex problem. We’re gonna have a supply problem.”

 

That’s good. Complete Intelligence expects WTI to grind higher until year end, with an interesting rally in Q1.

NYMEX WTI Crude Oil Futures (CL1) forecast through December 2020

NYMEX WTI Crude Oil Futures (CL1) forecast through December 2020
CI Futures generated this chart. Book a demo to see it live in action.

 

The most recent EIA report showed gasoline production up nearly 21% week on week. Refiners are starting to produce at levels last seen in January. It seems gasoline supply may stay ahead of demand for some time, so we’re expecting a relatively flat market until early 2021.

NYMEX Gasoline Futures (RB1) forecast through December 2020
NYMEX Gasoline Futures (RB1) forecast through December 2020
CI Futures generated this chart. Book a demo to see it live in action.

 

Finally, we expect a bit more action in natural gas as winter approaches and economies begin to normalize around the end of year holidays.

NYMEX Gasoline Futures (RB1) forecast through December 2020

NYMEX Natural Gas (Henry Hub) Futures (NG1) forecast through December 2020
CI Futures generated this chart. Book a demo to see it in action.
China floodsPreparing for 2021