It might be the storm or rising demand or refiners not procuring gasoline. Whatever it is, the American Petroleum Institute (API) reported a stunning 7.735-million-barrel drop in gasoline supply making it the darling of the sector as we are in winter blends category. Yet concerns about a winter wave of Covid and turmoil around the election, is keeping reaction to what was really a bullish API report somewhat subdued.

The API also reported that crude supply up by 691,000 barrels as well as a 2.104-million-barrel drop in distillate supply. Still, a slowdown is feeding into glut fears and that is being exasperated by the return of Libyan oil and the talk that OPEC Plus may not be taking it seriously enough. Overnight Libya’s Arabian Gulf Oil company reported that the Delta Hellas tanker is going to load 1.0 million barrels of oil for export today.

The drop in distillate is supportive as that has been the worst part of the complex due to the lack of jet fuel demand. Jet fuel is now being converted to bunker fuel to try to move it. Still, further lockdowns could keep the glut and make it hard for refiners to make gasoline and not cause a glut of diesel.

Water futures are coming. The CME Group is launching a new water futures contract. The Wall Street Journal says the contract, “will reflect transactions in the market for water in California, which a huge population and vast agricultural lands make America’s thirstiest state. Water futures contracts will be priced in dollars an acre-foot, which is the volume required to cover an acre a foot deep, about 325,851 gallons. Last week, an acre-foot of water cost $526.40, according to the Nasdaq Veles California Water Index. That is a 25% decline since the start of summer. Prices tripled in spring due to a historically dry February in California. The prices are derived from prior-week purchases in markets for California surface water and in four groundwater basins in the state. Nasdaq and London-based Veles launched the index in October 2018.

China has been the big driver for the global oil demand recovery but now says its going more green. Reuters reports that, “Chinese President Xi Jinping announced plans to boost his country’s Paris climate accord target on Tuesday and called for a green revolution, just minutes after U.S. President Donald Trump blasted China for “rampant pollution.” Addressing the U.N. General Assembly, Xi said China would achieve a peak in carbon dioxide emissions before 2030 and carbon neutrality before 2060, the first time the world’s biggest emitter of carbon dioxide has pledged to end its net contribution to climate change. “China will scale up its intended Nationally Determined Contributions (to the Paris agreement) by adopting more vigorous policies and measures,” Xi said, urging all countries to pursue a “green recovery of the world economy in the post-COVID era.” Xi used the lectern to call for multilateral action on climate change after Trump called the Paris climate agreement – with nearly 200 signatories – a one-sided deal and criticized China for being the world’s largest source of carbon emissions.

Natural gas should be finding a bottom after the recent storm related crash. LNG demand should rise and that should help solidify a bottom. Oil too should be close to the bottom as the seasonal pressure to the downside should slowly start to ease. Look to start pricing in longer term bullish spreads.
Thanks,
Phil Flynn

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