Energy Futures Cooling Their Heels 11-5-2020

After a strong 3-day recovery rally that’s added 14% or more to most contracts from Sunday night’s lows, energy futures are cooling their heels this morning with minor losses in the early going as the market appears to have moved back into wait and see mode.

While energy prices have stalled out, equity markets continue to rally even though the outcome of the US Presidential election remains in doubt. It seems that the rational for the push higher is that odds look favorable for a split congress, meaning that whoever wins the Presidential race will be limited in their capacity to make major changes. For a good quick read on the potential supply/demand impacts of the Presidential election, see this report from Rystad Energy.

Eta continues to churn over central America, and is expected to reform over the Caribbean this weekend, and Florida is still in the storm’s path for early next week. The forecast path has added a left turn in the past 24 hours, which could mean the storm will get into the Gulf of Mexico. Current models suggest a Florida panhandle landfall if that happens, which will keep the storm East of most energy supply infrastructure.

The silver lining of COVID & Hurricanes: While we’ll need to watch Eta for a few more days to make sure it doesn’t take another ominous turn, the reality is that even if it does hit oil production and refining operations (like Laura, Sally, Delta & Zeta did) the reduced demand in the country this year means most people won’t notice any issues with fuel supplies or prices. 

Yesterday’s DOE report provided more evidence for that phenomenon as demand continues to struggle through the fall, and requiring sharp pullbacks in both oil output and refining operations just to keep inventories at manageable levels. Ordinarily this time of year we’d expect refiners to be ramping up rates as they emerge from fall turnarounds, but this year instead we’re just waiting to see which plant will be next to announce it plans on shutting down for good.

The FOMC will be making another monetary policy announcement this afternoon, but nobody seems to care since the FED has already signaled it will be a long time before they consider raising rates again.

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