Energy Brief for Dec 21
The petroleum complex traded on the defensive as reports of a new strain of the virus that has higher transmission rates was reported in Britain and raised anew demand concerns. The uncertainty increased fears the recovery in demand will be slower than expected.
Reports of tighter restrictions in the UK and new mobility restrictions across Europe dashed bullish sentiment following constructive news linked to the US stimulus package and FDA approval of the Moderna vaccine. The new COVID-19 strain was reported to be up to 70 percent more transmissible than the original and has raised concern over how effective the vaccines as currently developed will be at controlling the virus. Reports that a variety of countries have closed their borders to Britain raised anew concerns over air travel in particular. In addition, reports of other countries including Australia, the Netherlands and Italy reporting the new strain appeared to set back ideas prevalent last week that we were coming out of the pandemic and helped increase concerns over global growth prospects. The news appeared to prompt comments by the Russian Deputy Minister formerly the Oil Minister that recovery of global oil markets was happening at a pace slower than previously expected and might even take as much as 2-3 years before demand recovers fully.
The Christmas trading week got off to a slow start as prices remained in their recent range on light volume. The February contract managed to test the 2.70 level yet again early in the session on support from an expected cold snap near Christmas that will spike demand for a couple of days. Selling pressure emanated from weekend production levels reaching 91 bcf/d and on forecast revisions that produced lower HDD expectations in the two week outlooks. Macro pressures emanated from a mutated strain of the Coronavirus reported in England that heightened concerns over potential lock-downs. The February contract ended the session 1 cent higher at 2.689. If the cold can materialize later this week and ultimately lead to a settlement above 2.70, it could open the door for an eventual test of 3.00 and a filling of the chart gap from mid-November.
Charts Courtesy of DTN Prophet X, EIA, Reuters
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