Signs Of Progress In The Covid-Wars

Optimism abounds as global markets cheer signs of progress in the Covid-wars, helping beleaguered energy futures move further away from their lows of the year.

RBOB gasoline futures doubled in value since reaching a low of 37 cents on March 23. Unfortunately for gasoline producers, the rally in futures has been largely offset by heavy selling in cash markets that has dropped basis values in several regions to all-time lows, and keeping outright values in the 35 cent range, well below the value of crude oil in most cases.

Diesel prices have outperformed gasoline for the past month as commercial demand remained relatively robust compared to the collapse in gasoline demand, but here too basis values are starting to come under more selling pressure as demand erosion starts to sink in.

Exxon announced this morning that it was cutting capital spending by 30 percent and operating spending by 15 percent to get through the pandemic. The report noted that the Permian would see a larger share of those spending cuts given the short-cycle nature of that production. The company also noted it was increasing production of chemicals used in hand sanitizes and masks to aid in the global response to Covid-19.

The forward curve charts below shows that as the pandemic curve has flattened, so has the contango in energy futures, although there is still a strong incentive for store and carry trades over the next six months.

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