TAKE YOUR BEST SHOT!
It’s like taking a shot at a moving target in the dark. That’s my perspective on short-term (meaning hour-to-hour) forecasting of price movements of crude oil, and its family of refined offspring.
In the not too distant past, price forecasting was based on the hard numbers of supply and demand, which meant you cranked the data handle and – Presto! There were the predictions.
Today, it’s more of… “Hubble, bubble boy are we in trouble,” stirring of the tea leaves.
The only physical commodity data that matters right now, and for some time to come, is jet fuel demand because this is the universal indicator of the health of any economy. If the oil industry is looking for that shot in the arm with a jump in demand then they better dig in for a long wait; and if that’s the case, crude oil producers better do the same. Recent stats from airline transportation associations indicate that demand won’t return for years.
This means that the delirium demand days of 2019 won’t be back until 2024 — at the earliest.
This is an important time frame because jet fuel demand has no borders and accounts for 8% of global crude oil consumption.
At the time of this report, the OPEC+ meeting is going into an unprecedented third day of plotting. So, the above demand forecasts for jet fuel will add fuel to their confusion. Will they now reverse their 2019, 2.2 million b/d production cutback and re-start their refinery runs?
Why do this when U.S. crude inventories, the demand benchmark, are a whopping 6% above the 5-year average?
This, despite a similar cutback in U.S. crude production in the fall of 2019 by 2.0 million b/d.
Why would OPEC+ add more oil to a leaking demand bucket?
The only way to plug the hole in this demand bucket now is for the consumer to have confidence in the effectiveness of a vaccine to get them back to work and the economy back on its feet. It’s a shot in the dark that we can’t afford to miss.
– Roger McKnight – B.Sc., Senior Petroleum Analyst
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