March 16, 2020

March 16, 2020
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  • WTI is down $2.69c to $29.04/Bbl, and Brent is down $3.72 to $30.13/Bbl
  • Oil prices fell further Monday morning as efforts to fight the spread of the coronavirus could trigger the most severe contraction in annual oil demand in history (Bloomberg)
    • Futures dipped below $30/Bbl for WTI as consumption is in a free-fall
  • The U.S. Federal Reserve cut its benchmark interest rate to near zero over the weekend and said it would buy $700 in Treasury and mortgage-backed securities to provide market stimulus
    • The Fed’s committee said it would hold rates at the new, low level “until it is confident that the economy has weathered recent events and is on track” (WSJ)
    • Sunday’s move to cut rates came after an emergency half-point cut on March 3
    • AEGIS notes that typically when Fed cuts rates the markets tend to rally, however, equities hit “limit-down”  as the massive rate cut stoked fears among investors
  • President Trump announced on Friday that the U.S. government would buy enough oil to fill up the Strategic Petroleum Reserve (SPR) in an effort to boost crude prices and help producers
    • Filling up the SPR may help buoy WTI versus Brent, where in recent years WTI has traded at a discount to international Brent, but fail to materially lift prices
    • The global oil surplus in April by some estimates could be between 6-10 MMBbl/d, dwarfing efforts by the U.S. government to inject demand by filling the SPR
    • The SPR currently holds 635 MMBbl but can store as much as 727 MMBbl
  • Natural gas is down 7.4c to $1.795/MMBtu
  • The CFTC reported that managed money short positions fell from 435,557 contracts to 386,386 contracts total, this was the biggest weekly decline since November 2019
    • Managed money long positions fell from 146,006 contracts to 145,596 contracts total
    • The sizable decline in short positions may have been the result of speculators selling in-the-money short positions in order to cover losses in equities and crude
  • Waha basis has pared some gains from last week’s sizeable price improvement as questions remain whether capex cuts will amount to any meaningful decline in associated gas growth
    • Waha Bal ’20 basis currently stands at $1.15/MMBtu, this is roughly $0.15/MMBtu lower than last week’s peak
    • AEGIS notes that, while prices have come off slightly, current price levels may prove advantageous for locking in basis hedges

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