While analysts point to Apple miss, Libyan civil war, Chinese demand and OPEC + has greater impact on crude oil, reports Phil Flynn.
Crude oil prices are giving up gains and turned lower after Apple (AAPL) will miss its second-quarter forecast for revenue. They pointed to supply issues for iPhones and lower sales in China as the Coronavirus shut down factories and stores. They see a 4 billion drop from $67 billion in revenue to $63. This caused crude to fall because they are worried that this may be a case of an Apple-like warning a day may keep stock buyers away. They say that Apple may not fall from the tree, but is the warning by Apple really a reason to get bearish crude oil? Maybe for the short term but overall probably not.
Oil prices were in recovery modes in hopes that the Coronavirus might not be as deadly as previous viruses. Yet the reality that companies are already hurting put a damper on energy demand, and we are starting to see how bad that might be.
On the backend, there will be pent up demand for oil as companies like Apple have to kick it into high gear to get things back to normal. That should provide a supply boost. Besides, the market should not be that surprised by Apple, and they should not be surprised when other companies offer similar warnings. We might have to get ready for an apple a day like Walmart (WMT) that had disappointing earnings.
Yet are these warnings in the rearview mirror? We already have priced in massive demand destruction in crude oil. In fact, in many cases, it does not even demand destruction per se, but oil demand delayed.
OPEC is still trying to finalize its production cut with Russia. Russia's Alexander Novak says that Russia is still in talks with OPEC+ 1.
On top of that, the civil war in Libya is still cutting oil exports. Reports today that there is a “Tripoli port coming under intense artillery bombardment from The Libyan National Army forces. Reports say that shells are landing near densely populated areas of the old city and major oil company HQs.”
Interestingly Bloomberg News reported that sudden oil buying spree by China’s independent refiners had taken Asian traders by surprise. “After weeks of production cuts, cargo deferrals and cancellations because of the deepening impact of Coronavirus on Chinese crude demand, companies including Shandong Shouguang Luqing Petrochemical Co., Shandong Huifeng Petroleum Chemical Co., and Sinochem Hongrun Petrochemical Co. have returned to the market in a big way.
They’re all non-state-owned refiners, known as teapots, from the eastern province of Shandong. Until recently, this corner of the industry appeared to be doing everything to avoid buying crude, including cutting processing rates.
Trade strategy may be key to ride out the crazy moves that will come with the headlines so keep in touch with our daily analysis. Makes sure you are getting my Daily Trade Levels! Read Phil’s energy report at Price Futures Group. Twitter: @energyphilflynn | Facebook: Phil Flynn
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