Morning Highlights
Morning Highlights

3.22.21 The energy complex has shifted dramatically lower this morning, as May crude has fallen around 4%

Ryan Kaup

Mar 23, 2021

Outlook: The energy complex has shifted dramatically lower this morning, as May crude has fallen around 4%. Product markets have fallen a similar amount, with April RBOB down about 4.5 cents, and nearby ULSD down about 5 cents. Refreshed lockdown measures in parts of Europe, along with a troublesome rollout of Covid-19 vaccines have pressured the complex lower. Analysts at Commerzbank have stated that the limited mobility due to the extended lockdowns is likely going to have a correspondingly negative impact on oil demand. Germany is reportedly extending its lockdown until April 18, while nearly 21 million people in 16 areas of France have been placed under lockdown as of last week Friday. A report from the Data Safety Monitoring Board stated that AstraZeneca may have included outdated information in trial results of its Covid-19 vaccine. The report comes just one day after results from a large U.S. trial showed that the vaccine was safe and highly effective. Trial results showed that the AstraZeneca vaccine was 79% effective. The new report may cast doubt on whether the vaccine will be given an emergency use authorization by the U.S. Food and Drug Administration. AstraZeneca plans to prepare for the primary analysis to be submitted to the FDA by mid-April. Equities are having a back and forth session, as all three major averages have traded both sides of even.

 

Crude

 

  • The Biden administration is planning to release a sweeping $3 trillion package to boost the economy, narrow economic inequality, and reduce CO2 emissions. A massive infrastructure plan would be included in the legislation. Advisers are expected to present the spending proposal to President Biden and congressional leaders later this week.
  • Barclays has raised its oil price forecast by $4 per barrel. The bank is estimating that Brent crude will average $66 per barrel this year, and $71 per barrel in 2022. They have WTI averaging $62 per barrel in 2021, and $68 per barrel next year.
  • Iranian crude oil exports remain quite elevated when compared to March 2020, according to tanker tracker Petro-Logistics. The company estimates that Iranian exports have averaged about 600,000 bpd so far in March, which is above 2020 levels but below the high of about 800,000 bpd seen in January.
  • Tomorrow morning the EIA will release its Weekly Petroleum Status Report. This afternoon an industry group will release its weekly inventory report. The Reuters poll of analysts and traders is estimating that the EIA will report a 908,000 barrel draw in U.S. crude oil stocks for the week ending March 19.
  • According to a report from the Wall Street Journal, Pfizer plans to develop new vaccines for other viruses using the same technology that was used for its Covid-19 vaccine. Pfizer’s coronavirus vaccine uses mRNA technology.
  • The May crude oil contract is trading $2.87 lower at $58.69. The 20-day and 100-day moving averages are $63.02 and $51.85, respectively. The 14-day RSI is 43.08%.
  • As of 10:04 am CST: May Brent is down $2.55 at $62.07, the U.S. dollar index is 0.443 higher at 92.185, while the nearby e-mini S&P 500 futures contract is down 4.75 points at 3,925.25.

 

Diesel

 

  • The April ULSD contract is trading $0.0547 lower at $1.7746. The 20-day and 100-day moving averages are $1.8807 and $1.5665, respectively. The 14-day RSI is 43.42%.
  • The Reuters poll of analysts and traders is predicting that the EIA will report an 11,000 barrel draw in U.S. distillate stocks for the week ending March 19.
  • According to an OPIS report, Group 3 X-grade ULSD premiums held at about 2 cents per gallon over April futures, which is the lowest level in about a month. Basis levels reached above 30 cents earlier in March.

 

Gasoline

 

  • The April RBOB contract is trading $0.0461 lower at $1.9137. The 20-day and 100-day moving averages are $2.0141 and $1.6211, respectively. The 14-day RSI is 44.73%.
  • The Reuters poll of analysts and traders is anticipating that the EIA will report a 1.10 million barrel build in U.S. gasoline stocks for the week ending March 19.
  • According to data from AAA, the current national average retail price for gasoline is $2.877 per gallon. Prices have held relatively steady from this time last week, but values are up about 23 cents compared to a month ago. Prices last year at this time averaged $2.129 per gallon.

 

Propane

 

  • Propane prices are mixed this morning. At last look, Conway propane was down $0.0050, trading at $0.8200. Mt. Belvieu was up $0.0100, trading at $0.8950.
  • The NOAA’s 6-10 day and 8-14 day weather outlook are calling for warmer weather for much of the country. As spring has arrived and warmer weather has started to creep into the forecast, home heat demand for propane is likely to begin contracting. As demand falls, inventories are likely to build, which may put pressure to the downside for hub prices. Inventories are quite low from a 5-year seasonal perspective, however, which may limit price movement.

 

Natural Gas

 

  • The April Natural Gas contract is trading $0.035 lower at $2.547. The 20-day and 100-day moving averages are $2.661 and $2.704, respectively. The 14-day RSI is 40.50%.
  • The EIA will release its Weekly Natural Gas Storage Report on Thursday. Over the last five years, inventories have fallen on average 51 Bcf on the March 19 report.

 

On March 23, 2020 the S&P 500 hit its lowest level after the Covid-19 pandemic pushed the index 30% lower in 22 days. There have been five other sell-offs of 30% or more since World War II. After such a sell-off, the market responds in year two with around a 17% return on average.