The Oil Price Rally Is Officially Over

The recent aggressive oil price rally appears to have officially come to an end, with WTI having lost more than $7 in one week. Prices began to bounce back on Friday morning.

In this week's Global Energy Alert, our trading team delves into how an inflationary environment will impact oil stocks. Sign up today to get breaking news, expert analysis, and trading tips.

Friday, March 19th, 2021

Crude oil plunged by more than 7% on Thursday, the worst single-day loss since April 2020, and is set to close out the week down by the most since October. The decline is the result of a combination of bearish factors – profit-taking by overly long speculators, a stronger dollar, and diminished hopes surrounding vaccinations in Europe. “There have been some bearish headlines over the last two weeks,” Helge Andre Martinsen, senior oil analyst at DNB Bank ASA, told Bloomberg. “But it’s surprising that it happened in just one day.”

Vaccine hiccups could prevent 1 mb/d of oil demand. According to Rystad Energy, a lengthier vaccine campaign in Europe – due to delays and increased hesitancy – could delay the recovery of 1 mb/d of oil demand this year.

Related: Three Commodities Set To Boom As The Global Economy Recovers

China buys more Iranian and Venezuelan oil. China is expected to import 918,000 bpd of oil from Iran in March, the highest since U.S. sanctions went into place two years ago. The purchases have reduced the incentive for Iran to negotiate analysts say. Imports from Venezuela are also on the rise. 

U.S. coal generation falls below nuclear. U.S. coal plants generated 774 million MWh in 2020, less than natural gas (1.6 billion MWh) and even nuclear (790 million MWh). Coal slipped into third place last year for the first time since at least 1949.

U.S. refining capacity still not fully restored. U.S. refining capacity is sitting at about 80% of levels seen before the Texas grid crisis in February. An estimated 1.2 mb/d of refining capacity remains offline, according to IHS Markit, due to spring maintenance and ongoing repairs.

U.S. government wants EV metals mined in Canada. The U.S. Department of Commerce held a closed-door virtual meeting with miners and battery manufacturers to discuss ways to boost Canadian production of EV materials, according to documents seen by Reuters.

Automaker shares surge on EV excitement. Tesla (NASDAQ: TSLA) surged this year, but now traditional automakers are seeing their share prices rise as well. Ford (NYSE: F) and GM (NYSE: GM) are up more than 40% this year. VW (ETR: VOW3)saw its shares spike nearly 30% on a single-day this week after its Power Day event (more below). Analysts see Tesla’s premium wearing off as old school automakers plunge deeper into the EV race.

Texas freeze leads to plastics shortage. Prices for polyethylene and polypropylene and other chemicals are rising due to the outage of multiple petrochemical plants in Texas. That could lead to cost increases and delays for automakers. Honda Motor Co. said Wednesday it would halt production at most of its U.S. and Canadian car factories next week.

VW soars 29%. VW (ETR: VOW3) soared 29% on Tuesday after the company announced detailed plans to scale up EV manufacturing. VW wants to become the global EV leader by 2025. “Volkswagen is turning electric, poised to overtake Tesla’s battery-electric vehicle crown in 2023 and catch up on software by 2025, a view the market is only now developing,” Michael Dean, a Bloomberg Intelligence analyst, wrote in a report

Biden weighs new Nord Stream 2 sanctions. Under pressure from Republicans in Congress to stiffen penalties on Nord Stream 2, the Biden administration says it is formulating new sanctions. 

IEA: Gasoline demand peaked, but not crude oil. Despite speculation that oil demand peaked in 2019, before the global pandemic hit the industry hard, a new IEA report suggests this assumption may have been overstated as demand is set to continue increasing until 2026.

3 commodities set to boom. Wall Street is now predicting a new commodity bull market that will rival the oil price spikes of the 1970s or the China-driven boom of the 2000s. Here are 3 key commodities that can act as an inflation hedge and also as a nice play in the emerging commodity supercycle. 

Rystad: Renewables spending hits record. Global CAPEX on renewables will hit a record of around $243 billion this year, according to Rystad Energy, closing the gap with oil and gas, which is expected to remain flat at $311 billion.

First shale IPO flops. The first U.S. shale public offering in five years was launched this week, and judging by the result, investors are still largely steering clear of the sector. Vine Energy (NYSE: VEI) raised around $300 million, short of its goal of $360 million.

India considers a net-zero goal. Top Indian government officials are mulling a net-zero mid-century goal. India is expected to account for the largest source of new oil demand in the coming decades, so policies to curtail fossil fuel use would have global implications. 

Cenovus announces layoffs. Cenovus (TSE: CVE) is laying off 1,000 workers, the second round of layoffs after taking over Husky Energy.

China busts $770 million smuggling ring. China foiled criminals seeking to smuggle nearly 1 million tonnes of refined oil worth 5 billion yuan ($770 million), according to Reuters.

The U.S. to step up climate finance scrutiny. The Commodity Futures Trading Commission said it would establish a Climate Risk Unit to scrutinize complex financial derivatives and their exposure to climate-related disasters. The Securities and Exchange Commission also is seeking input on potential new rules for requiring companies to disclose of climate risk.

Schlumberger to launch a Nevada lithium plant. Schlumberger’s (NYSE: SLB)New Energy division said it would launch a lithium extraction plant in Nevada.

By Tom Kool for Oilprice.com

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