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Optimism Abundant As Prices Reach New Levels

Tuesday, May 19 2020
Market Talk

Optimism is abundant this week as energy and equity prices reach their highest levels in over two months. Demand recovery around the globe is the hot topic as countries and states continue to relax restrictions, and reports suggest China’s consumption is almost back to pre-pandemic levels.

Apple’s mobility trend data, based on demand for its mapping software shows that U.S. driving demand is now down less than 20 percent from pre-COVID-19 conditions, while public transit demand is still off some 70 percent.

That divergence in modes of transportation highlights what may become a major challenge for refiners in the back half of the year. Gasoline consumption looks like it will continue moving higher, but diesel demand in many forms, from planes, buses, trains, oil rigs and 18-wheelers looks like it may take much longer to recover. To make more gasoline, refiners will be challenged to find a home for that extra diesel, as storage tanks have filled up rapidly in the past five weeks.

What a difference a month makes. June WTI futures expire today, and that contract is trading at a premium to July. Backwardation in the forward curve, even if it’s only for one expiring contract, seemed impossible back on April 20 when the May WTI contract plunged to -$40.

Supreme Refusal: The supreme court denied reviewing two cases this week that have direct impact on refiners. The first case was attempting to shift the point of obligation under the Renewable Fuel Standard from refiners to blenders. The other was an appeal by Venezuela to prevent the sale of Citgo.

Click here to download a PDF of today's TACenergy Market Talk.

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