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First Look

March 25, 2020

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By March 25, 2020 No Comments
  • WTI is down 48c to $23.53/Bbl, and Brent is down 85c to $26.30/Bbl
  • Oil slipped lower this morning as the unprecedented hit to consumption continues
    • The head of commodity trading house Vitol Group said demand is down about 15-20 MMBbl/d and will shrink further with India’s decision to go into total lockdown (Bloomberg)
    • Futures were higher overnight as the White House struck a deal with Senate Democrats and Republicans to provide $2 trillion of spending and tax breaks
  • The oil forward curve has moved into a steeper contango as tanker rates declined, making a trade to stash crude at sea very profitable (Bloomberg)
    • The cost of storage for 3, 6 and 12 months is well below the associated contango for Brent. The data was based on cargoes for northwest Europe, the Mediterranean and Asia
    • Storing oil on a VLCC cost $4.05/Bbl for three months versus Brent contango of $6.48/Bbl, making floating storage very profitable, according to E.A. Gibson Shipbrokers estimates
    • Storage cost for six months is at $5.40/Bbl vs $9.22/Bbl of contango
    • AEGIS notes that contango must exceed cost of storage for floating trade to become workable
  • EIA weekly data is due at 9:30 AM CST
    • U.S. Crude Inventories:                  +     3,304 MBbls (Avg. Bloomberg surveys)
    • U.S. Gasoline Inventories:             –      1,945 MBbls
    • U.S. Distillate Inventories:             –     1,662 MBbls
    • U.S. Refinery Utilization:               –     0.25% change
  • Natural gas is up 1.6c to $1.669/MMBtu
  • The Prime Minister of India is ordering 1.3 Billion citizens to remain at home for the next three weeks due to the coronavirus outbreak
    • India is the world’s third largest oil importer and the fourth biggest LNG consumer, according to Platts
    • AEGIS notes that India has been the saving grace for LNG during this low demand period, as they absorbed the majority of spot cargoes that were deferred from China over the last month or so
  • Major importers of LNG in Spain and Italy are considering invoking force majeure on some prompt cargoes, according to Bloomberg
    • Cheniere’s COO was quoted saying that its reasonable to expect customers to not lift cargoes, but still pay their tolling fees under their contracts in 2Q2020
    • AEGIS notes that choosing to not lift cargoes from the U.S. is bearish for gas demand compared to deferring cargoes
    • If a buyer chooses to defer a cargo, the LNG supplier can usually assume control and market the cargo elsewhere while it is on the water
    • Outright deciding to not lift a cargo means that said amount of natural gas could stay within the United States
  • The Commodity Weather Group forecasts 317 HDDs total for the month of April, which would place it in the top-15 warmest Aprils of all time
    • The 30-year normal is 354 HDDs, the 10-year normal is 331 HDDs