While the Presidential race outcome in the U.S. is unclear but favoring President Trump, at least we are getting clarity from OPEC Plus. Not only is OPEC oil revenues at the lowest level since 2002, but reports suggest that the group, along with Russia, will consider cutting more production to offset potential demand destruction from European Covid-19 lockdowns.
In the meantime, oil demand signals are strong. Strength in U.S. manufacturing and strong demand from India and China offset fears about European shutdowns. In comparison, many states are still counting votes making the fate of a stimulus package up in the air, but with the Senate still red and the Congress still blue, gridlock will favor the stock market. American Petroleum Institute (API) counted the barrels and found a significant drop in the U.S. oil supply.
The API reported U.S. crude supply fell by 8.01 million barrels. The number reflects a resumption of oil exports and increased refinery demand. Gasoline supply did increase by 2.45 million barrels and a drop of 557.000 barrels in the distillate supply. These numbers are still feeling the impact of the recent rash of hurricanes plaguing the Gulf coast.
Russia and Saudi Arabia are looking at delaying revision of quotas on January 1, with both willing to reduce crude output in the new year to support prices and avoid a second crash, Reuters reports. The fact that OPEC Plus will be proactive in meeting demand challenges should give the oil a seasonal floor.
What is making this hard is the fact that OPEC has taken a big hit from the coronavirus. The Energy Information Administration (EIA) forecasts that members of the Organization of the Petroleum Exporting Countries (OPEC) will earn about $323 billion in net oil export revenues in 2020. If realized, this forecast revenue would be the lowest in 18 years. Lower crude oil prices and lower export volumes drive this expected decrease in export revenues.
OPEC earned an estimated $595 billion in net oil export revenues in 2019, less than half of the estimated record high of $1.2 trillion, which was earned in 2012. Continued declines in revenue in 2020 could be detrimental to member countries’ fiscal budgets, which rely heavily on revenues from oil sales to import goods, fund social programs, and support public services. EIA expects a decline in OPEC’s net oil export revenue in 2020 because of continued voluntary curtailments and low crude oil prices.
Natural Gas prices plunged on a warmup but the outlook is bullish if winter returns. The Wall Street Journal reports, “Winter’s approach and a lot of working from home have lifted natural-gas prices to more than double their summer lows. More-expensive gas could sting consumers hunkering down for a winter in-home offices and virtual classrooms. The U.S. Energy Information Administration estimates that average daily gas consumption will be 5% more this winter than last due to colder temperatures and people burning more than usual to heat and power their homes.
The Journal says that the big risk to $3 gas is a warm winter, like last year. Uncharacteristically warm weather across the Northern Hemisphere meant that gas-storage facilities from the Netherlands to China brimmed with unburned fuel when the pandemic hit. Economic activity halted and the glut got worse.
Overseas buyers of U.S. shale gas canceled orders for tankers full of liquefied natural gas, LNG, and unsold cargoes added to the domestic oversupply. When the U.S. locked down in March, demand for transportation fuels such as gasoline and diesel plummeted. Consumption of natural gas fell at factories, restaurants, and other businesses but picked up at power plants and among Americans stuck at home, who cranked air conditioners against the summer heat and ran computers and other household electronics like never before.
According to the Energy Information Administration, the volume of gas delivered to power plants set a monthly record in July. Since March, residential gas consumption has been up 10% year over year, according to EIA data through August.