Time to Panic?

02/24/2020 12:07 pm EST

Focus: COMMODITIES

Phil Flynn

Senior Energy Analyst, The PRICE Futures Group

Corona is spreading faster than anticipated and creating more demand destruction in crude, reports Phil Flynn.

The global pandemic that some people feared with the news of the spread of Coronavirus looks more possible than ever as there has been a massive increase of reported cases outside of China. Fear is beyond reason and it is reasonable to be fearful. Concerns of the virus spreading around the global and fears of more oil demand destruction as cities are shut down. Vox reports that as of Sunday, there were 78,000 cases of Covid-19 (The technical names for Coronavirus) in at least 29 countries, including surging cases in Italy, Iran, and South Korea, as well as an ongoing outbreak on a cruise ship off Japan.

For oil the fear is we will see more demand destruction and turn a very tight global oil market into an oversupplied market.  The oil market is pricing in the risk of a global slowdown as the virus spreads. We can give historical contexts to these types of events and in the big picture demand shocks should be bought not sold yet try telling the market that.

Reports that the Virus is creating tensions between Saudi Arabia and Russia. The Wall Street Journal reported that the Saudis were considering breaking up the OPEC arrangement with Russia though Saudi Arabia denies it.

In the meantime, U.S. product supply should fall again this week. Look for crude to fall by 2 million barrels and gasoline and distillates to each fall by 3 million barrels. Bloomberg reported that Money managers’ WTI net-long position, or the difference between bullish and bearish bets, dropped 22% to 95,536 contracts, the lowest since October, according to data released Friday by the U.S. Commodity Futures Trading Commission. Long-only wagers fell 6.7%.

Natural GAS

Nat gas is not phased.  EBW analytics  says that in the natural gas market, the March contract finally broke through resistance last Thursday morning after EIA reported a much larger-than-expected 151 Bcf withdrawal—but quickly reversed course after resistance held twice at $2.025/MMBtu, forming a bearish double top. Since then, weather forecasts for the current 10-15-day window have trended significantly milder. While the loss in natural gas demand has been modest, if this trend continues, NYMEX futures could lose significant ground this week—with only a few weeks left in the withdrawal season.

 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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