Tom Kirkman

Why U.S. Oil And Natural Gas Demand Will Rebound From COVID-19

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Once the China Flu lockdowns go away, demand for oil & gas will return, at least somewhat in the near term, and pretty much back to what it was before in the longer term.

Ignore the "New Normal" nonsense spouted by idiot talking heads on TV, who have a panic agenda that is NOT in your interest.   < cough Greta cough >

By far, the biggest factor in oil & gas this year is the overreaction by many countries to Covid-19, and the government-mandated suicidal gutting of their economies.

Remove the government-mandated lockdowns, allow citizens to work again, and countries will recover.  And so will economies.  And so will oil & gas.

Countries that continue to overreact by continuing to enforce draconian lockdowns will likely earn themselves Darwin Awards for their suicidal government behavior.

 

Why U.S. Oil And Natural Gas Demand Will Rebound From COVID-19

Amid COVID-19 and an oil price war, recent months have marked perhaps the roughest stretch ever for the U.S. oil and natural gas industry.

For oil, sinking demand with global overproduction plunged prices and rattled balance sheets. In fact, oil prices went to a ridiculous negative $40 just a few weeks ago on an extreme technical glitch in the way oil futures operate. For natural gas, the market hasn’t been all that impacted. Prices have generally remained very low but stable below $2.00 since mid-January - well before the pandemic arrived.

So unsurprisingly, we now keep hearing about the “end of oil and gas” and our renewable energy world waiting right around the corner. But, digging deeper, let’s look at what has really happened and where we’re likely to go from here.  ...

 

... Unfortunately, all energy industries are struggling through the pandemic. That includes disrupted supply chains and workforce shortages for renewables. Electric car sales, largely promoted as the driving force behind “ending the oil age,” are at the brink too, expected to drop almost 45% this year, per experts at WoodMac. Way too unrealistic for today’s majority, “BMW: Electric Cars Will Always Be More Expensive Than Gas Cars.”  

It might take a year or even two, but jet fuel demand will recover as travel bans end and business trips return. There’s simply no substitute for flying and we Americans love to do it. Oil, after all, is therefore the basis of globalization, an integral and still emerging trend that you’d be well advised to not bet against.

As opportunities to travel return, low oil prices themselves encourage usage since they lower the prices for the gasoline, jet fuel, and diesel fuel that overwhelmingly move our world.

As for natural gas, fast becoming our most vital source of energy, perhaps the most telling sign of its competence is that demand through the first four months of this year has actually been higher than for the same period in 2019. Read that again. 

Importantly, that more gas fact comes even as a mild winter and spring should be lowering demand. COVID-19 has pushed industrial demand down 8-10% or so, but an equal rise in the power sector has compensated.  ...

 

... Ultimately, the bigger problem may be that as demand rebounds, a lack of investment in new supply could violently collide with rebounding demand to surge pricing for both oil and gas. This is even a concern in the very near-term: “Goldman Sachs: Oil Demand Could Exceed Supply By End-May.”  ...

 

... The facts on the ground haven’t changed: for something integral to disappear, there must be something to adequately replace it. Oil and natural gas still remain nowhere near replaceable at scale (especially since coal and nuclear are statistically proven to be on the decline).  ...

 

... Energy markets are cyclical, and have faced severe down cycles before, only to ultimately come out stronger on the other end. For the U.S, that means: 1) stable but buoyantly very high oil demand, 2) much, much more natural gas, and 3) rapidly growing renewables, actually bolstered by natural gas that is both cheaper and more widely available than batteries to backup their intermittency.

We’re seeing much of the same extreme rhetoric that we saw 10-15 years ago. Do your future self a favor: bookmark and PDF all the ridiculous, lacking all evidence headlines and quotes mushrooming today. Trust me, you’ll need them once again to show how even smart people can be so ....

 

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Demand will come roaring back, IMHO.  The cat is out of the bag.  This is "...fool me twice, shame on me" time.  It is my belief that people are going to come out of this energized, with a greater understanding of what their inattention has led to, and they are going to get to the work at hand.  Corporations are, to a very large degree, letting the people drive this as well, so they will waste no more time than absolutely necessary to get back up to full speed ahead.  Governments are getting the message, louder and clearer every day.

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(edited)

13 hours ago, Tom Kirkman said:

It might take a year or even two, but jet fuel demand will recover as travel bans end and business trips return. There’s simply no substitute for flying and we Americans love to do it. Oil, after all, is therefore the basis of globalization, an integral and still emerging trend that you’d be well advised to not bet against.

Globalization is going to look far different than in the past. It will sort of continue, but its' main anchor in China is a black hole. As Chamath Palihapitiya has been pointing out. The keyword of supply chains today isn't cost optimization, but resilience. The other keyword is regionalization, and even onshoring.

Trump will be running on a reindustrialization campaign to "secure" US supply chains for crucial materials and products in pharmaceuticals, Medical equipment and technology and its materials. 5G is not going to be Huawei and Ericson. It is going to be all American by companies we never heard of. Lighthizer and Navarro are pretty much calling the end of any trade relationship with China. They are welcome to buy what they need, but nobody in the US or its companies are going to get away with letting China unload its excess production nor retain its monopolies. If they complain of costs, they will have subsidy tax rates for a carrot and a sea of whips to hit them on every transgression. "not made in China 2025" is the future mantra. With 90% US popular anger against China,The campaign assures broad support and crossover voting.

13 hours ago, Tom Kirkman said:

... Ultimately, the bigger problem may be that as demand rebounds, a lack of investment in new supply could violently collide with rebounding demand to surge pricing for both oil and gas. This is even a concern in the very near-term: “Goldman Sachs: Oil Demand Could Exceed Supply By End-May.”  ...

As the storage stats and VLCC leases are showing, production had fallen far more than estimates would indicate. Some marginal producers hadn't just choked production. They abandoned the oil business and will take about 2 years to make it  back online 

I don't think the China example of the initial wave of splurging then back to a trend of falling consumer expenditure will repeat in the US. Many incomes will come back outside of travel and hospitality. Online substitution for restaurants and retail employs MORE people than physical stores do.

Flying may take quite a while to get back, and business flying is not regarded as a necessity any longer. Productivity gains in the virtual office were astounding over Zoom conferencing and collaboration software. CEOs suddenly are both far more available to their executives,as are the executives,since they are not spending so much of their time traveling. They actually get to do MORE meetings and networking electronically than they ever managed physically. The downtown office and the conference room are dead spaces. That those are in the core Democrat metros, which will see a collapse in commercial real estate pricing and occupancy rates as the once prestigious address is now only regarded as a millstone on company finances and workers are already looking to flee.

https://www.redfin.com/blog/wfh-leaving-new-york-san-francisco/

The big effect of less flying - permanent for business- is the road trip. People will do longer range driving, which is far less energy efficient than flying. And it won't be in a little PHEV, but in a great big SUVs. It will reduce the demand for the heavier distillate product and increase gasoline demand so as to push the refiners to use a lighter (more LTO) crude blend. Throughout the pandemic period, the NG trucks still paid off vs. diesel, as prices per mile remained strongly in NGs favor.

Edited by 0R0
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@0R0;  "Trump will be running on a reindustrialization campaign to "secure" US supply chains for crucial materials and products in pharmaceuticals, Medical equipment and technology and its materials. "

The Socialist Left, Soros & CCP; thought they had finally found the 'winning hand'... (Cough Greta Cough)  Instead, they have handed the President and the Republicans (if they handle it correctly) the WH for another term as well as getting the House away from that cloven hooved Dementor Pelosi...

During his campaign in '16, then candidate Trump; said repeatedly we (US) must return manufacturing too this country.  He knew there would come a day/situation where the CCP would be emboldened to adversely affect our ability to deal with a significant/serious situation.  Well folks, here we are.  The Wuhan has proven him right yet again.  Hopefully this has awakened boardrooms across America too this fact and plans are being formulated that will repatriate production back on US Soil! 

 

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