Commodity Research Group (CRG) is an independent research consultancy specializing in base and precious metals, as well energy products. The Group provides research and general price analysis for these markets, along with advice to companies seeking to construct hedging strategies.
In this podcast, oil market experts Andrew Lebow and Jim Colburn discuss key fundamental forces driving oil prices in both the futures and options markets.
About Your Hosts
Andrew Lebow has been involved in the energy derivative area since 1980. He began his career with Shearson Lehman Brothers where he worked in the initial formulation and marketing of the NYMEX WTI crude contract in 1983 as well as the NYMEX gasoline contract in 1985.
Mr. Lebow has appeared before the State Government of Alaska as well as the State Department of Defense to discuss hedging techniques. Mr. Lebow is also well known as a market analyst and is quoted frequently in the financial press. He has appeared on television on CNBC, NBC, CNN, CBS, and PBS. Mr. Lebow holds a BA from Lafayette College and an MBA from the Kellogg School of Management at Northwestern University
Jim Colburn is a futures and options professional with 30 years of wide ranging experience in commodity markets. For much of his career, at Man Financial (1989-2011) and Jefferies LLC (2012-2013), Mr. Colburn worked with major integrated oil companies, hedge funds, pension funds and other entities to develop market hedging and trading strategies.
He has conducted trading, hedging and risk management workshops in energy markets worldwide.
Mr. Colburn is a published author on options trading, hedging, market making and risk management. In 1986, while at the New York Mercantile Exchange, Mr. Colburn helped develop new markets in energy option contracts by educating the oil industry, banks, floor traders and brokers, worldwide.
This is Jim Colburn of Commodity Research Group. I’m with Andy Lebow, also of Commodity Research Group. And we’re here to talk about energy markets.
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Today is March 16th.
Andy, we have a lot to talk about.
Yes, we do.
Once again, let’s get started a lot of moving parts in this oil market. And um, why don’t we just take up the OPEC meeting a year ago? We were talking about what a disaster, the OPEC meeting was.
They’ve got their act together and the, and the Saudis just keep coming out with, uh, surprises. So why don’t you give us your take on what happened and what they’re looking at?
Okay. The, um, last OPEC meeting, similar to the one in January on a surprise, the market, many analysts, including, I must say myself, uh, expected that OPEC would increase OPEC plus or to increased production by about a half million barrels a day. And the only question was whether or not the Saudis were going to bring on their unit, their last unilateral price cut. They made in January of a million barrels a day. What’s that going to be all at once? Was it going to be over three months? You know, how are they going to bring those, uh, those barrels back onto the market? Because we, you know, we all figured, okay, prices are a relatively high here. And, um, you know, the Saudis are probably not, they may, they don’t want to lose all that much market share. However, what they chose was a different strategy, Jim, they, they chose to, uh, follow, um, in retrospect, a higher price strategy.
They didn’t bring on any of the barrels of their 1 million barrels a day. And then they gave slight increases to, uh, Russia and Kazakhstan and the market reacted right away, uh, because it was genuinely surprised. Brent getting, uh, you know, Brent getting up over $70 and a WTI into the 66 67 range. So, Oh, it was a, uh, it was a surprising meeting. The, uh, I think the Saudis came out of it saying that, uh, you know, you, you, you, you won’t know what we’ll be doing, which I guess Jim, you alluded to from last year. Exactly. Well, we were also shocked the other way of the, you know, the Saudi, the Saudis came out of it. No, almost taking a victory lap. And I think the Saudi Saudi oil minister was saying, well, drill baby drill is dead. And we’ll, we’ll talk about that.
But in, um, you know, w w what he does see, what OPEC plus do see is that, uh, one us production was just hurt by the big freeze, but two for now, uh, us producers have had, uh, you know, I’ve been pretty disciplined on, uh, on their drilling programs, which has certainly helped, and which has certainly helped OPEC on their, uh, OPEC plus, uh, on their, um, you know, the decision matrix. The next meeting is, uh, April 1st. And, um, you know, quite frankly, I’m, I’m, I think certainly await to see what, uh, you know, what, what their net, what the next move is. I think not surprisingly, uh, if you look at what the Saudi fiscal break even prices for for this year, it’s $68. So the, you know, the right arm where, where, uh, you know, I think we’re, you know, where they want to be, although they can lead, they could use more volume, I think.
Yeah. Right. I mean, the volume market share is, is definitely an issue for them, but, uh, obviously, so is the price. And, uh, the, you know, they are cognizant, they want, they don’t want prices too high to, to bring out, um, competition from, uh, other producers. But, um, you know, they’re, I, I think they’re, I think they’re satisfied as are some of the Persian Gulf brethren with these prices, actually, probably all the producers are satisfied with the, with this, uh, this price for now. And we’ll see what, uh, w w w we’ll see what April brings. They’ve been giving. They’ve been given a lot of, uh, lip service to, um, the five-year average commercial. So we see the commercial stock five-year average, and, uh, you know, that is in the last OPEC report. I think it was something like 94 million barrels over the layout over the prior five-year average.
So it is, um, you know, they won’t get there in, at the end of March, which leads you to believe for April meeting, you know, that they may dribble barrels out, but I don’t, I don’t think that much, it looks to me like the, that five we’ll get to that five-year average probably in may. So, you know, that that may be one of the decision matrix matrices that they use to, or that’s just data points that they use to increase increased production, but, you know, they’ve, they’ve done, they’ve done, they’ve done a really surprised or remarkable job, you know, surprising job in maintaining discipline, w w within the group and bringing prices from, you know, last year at WTI was negative by $40 to what point and Brent was in the teens, you know, and now they’re in the, now they’re in the sixties and, you know, we’re in the sixties and we got over 70. And since
That really happened, Annie
Minus 40, yeah. It is hard to believe. Right. We look back and it just can’t, you know, can’t believe it, but it happened, you know?
Yeah. Well, one of my favorite, there was an economist that got on, on TV and said something like, they’re paying you $40 to store oil. And you could tell he hasn’t been in the oil markets, because like you said, January was still like $20. So he said, no, to paying you $60 to strike oil. Right. Yeah. It was crazy. The EIA has the Saudis up a million barrels in may. So, so they kind of, you know, they had to pull it out of, uh, April. So they have 25, three for OPEC production in April. Right. Which is what we have, which is like, minus one, six from last months. Uh short-term energy, outlook pride. Right. And so now they have, plus one in may, like you said, so there’s, they’re, I guess they’re agreeing with you that these guys are figuring maze a time where they can, uh, come back. So, but let’s, let’s back up a little bit,
But should have the, the key is, are they going to bring it, you know, are they going to bring all million back or are they going to, you know, is it going to be 300 is going to be zero? I think, I think they will increase in may. Um, but you know, again, the key is, you know, what the, what the, uh, what the volume is,
Right? I mean, that’s, um, we’ll get into the demand response in just a second, but as far as the OPEC, this, this month, is this going to be a monthly meeting now, or, you know, now that they’ve, we’ve all figured out zoom and you don’t have to be in person, and we are going to do technical meetings once a month, how’s it going to work on one folder?
So it’s scheduled to be monthly, right. They may prove that that, that may prove to be a little unwieldy and the, and they do it, you know, by, you know, every other month, but, uh, it is scheduled to be, it is scheduled to be monthly. And, um, you know, that they have to eventually, you know, they have to figure out how to unwind this, um, you know, unwind the steel. Um, there there’s six to 7 million barrels a day of spare capacity with, within OPEC. Uh, and then, uh, you know, Iran has a mill, a million and a half to 2 million barrels a day of, uh, of spare capacity. Uh, Iran is an OPEC producer of course, but, um, so you figure a total of like seven and a half, 8 million barrels a day of, of, uh, spare capacity in the group.
And that’s, um, that’s supply, that’s chomping at the bit to come out.
Well, certainly it’s $70. It’s a heck of a lot better than the teens when it was coming out though. I mean, that’s why we got to the team because it was coming out Gushers.
So Andy Iran has been selling oil to China,
Right? Yes. The Iranian, um, exports to China have probably picked up some, uh, picked up. And that is a, uh, although their, their production numbers are steady so that that’s either coming out of storage or it’s being allocated, uh, from, you know, their, their own consumption. But you know, that that’s third, that, that those are generally third-party sales. You know, when, when the, um, there w when their tankers leave port, you know, they, they turn off the transponders, so they can’t be identified. And then, um, you know, it goes into, you know, whether, you know, it goes, it goes somewhere else. You know, it goes to other third party, some other storage, and is then, um, shipped to a shift to China, but China has, has increased their, um, purchases of, uh, Iranian crude. And that is, um, you know, perhaps a foreshadowing of, of what we’re going to see later, you know, later this year when, when, and if sanctions are lifted.
So what is the U S response in terms of not, not politics, but, uh, oil producers? Where, what are they, are they no longer in the drill baby drill mode? Or what do you think?
Uh, Oh, I, you know, again, I think as we know, that’s the price, that’s a, that’s a price decision, but certainly on this rally, you know, w w we one would think that w we’re seeing more hedging activity in the, uh, in the back of the curve and that will, you know, that will inevitably bring on, uh, more barrels, certainly more, uh, us crude production, certainly as, as prices move higher, if they move higher than more know the there’ll be more hedging and, and, uh, certainly there’ll be more, uh, production to come out. Now, the EIA just, they made it huge benchmark revision for, uh, 20, 22. They said us crude production was going to be up by a million barrels a day. What was the last one? Chimp, was that a half a million barrel?
Yeah, the revision is up a half a million from last month.
Yeah. That’s major. That’s the big time number.
It’s a big, big revision. That’s due to higher prices.
Yeah. And, you know, let’s not forget that, you know, these EMP companies, the PE part is, is productions. You know, it isn’t like that even though they’re, you know, that they have done a decent job on, uh, discipline and they are talking about, uh, returning value to the shareholders, which they have not done over the last 10 years or so, or, you know, it’s been sporadic, but, you know, we, we start seeing prices in the, in the back of the curve, mid sixties to mid seventies, you know, I think all bets are off. Um, they’re producers, you know, that’s part of the business, that’s part of their business model.
You know, I was looking at the, uh, DCE 20, 21 that’s this year 50 put, uh, settled a two 75. I mean, that’s, I think that’s a nice hedge for PE. I mean, certainly you’d like to do better than that, but as, as a little protection, worst case scenario, and that’s a decent number, I would think that we’re going to see, you know, a good increase, but, you know, I think they will be coming out of the woodwork to more than what’s in the numbers. I think we’re going to do a little bit more than that. A little more optimistic on the, on the drilling, it’s kind of odd and in a world of options, I mentioned last month that, uh, there is a DCE hundred call is, is the largest open interest in the, in the WTI options. But it’s what it does decrease of 2022. So some, obviously somebody has been selling it, but, but I think the initial year of that trade was a buyer. And so that’s over 50,000, uh, it’s up to 60,000 contracts on a hundred call, should your 98 call in December, 2022 is up to 29,000. So those are two of the biggest open interest strikes on the whole board. And, and it’s kinda, it’s kinda odd to see, you know, and I just, uh, who knows we can, anything can happen. But, um,
I realized, I think both of us over our long, uh, checkered careers, you know, we’ve, we’ve seen, we’ve seen everything, you know, if you were to say, if you were to say to me, no way oil was going to be a hundred dollars in these 20, 22, I’d immediately call BS on you.
Right. Right. You’d say the same thing to me. Yeah.
If I said all that’s no chance. Right, right. It’s good. Certainly it’s got to change.
That’s right. It’s just like, uh, the, all these, uh, monthly reports that come out trying to forecast, and then like the IIA, we mentioned their revision and, you know, up a half a million barrels due to the high price. Well, you know, when you, when you S you see the high price, and then you see the revision that sends, it sends the price lower, you know? Right. Right. So, I mean, it should, I mean, but, but, uh, it’s, it’s the, uh, EIA and the IEA and OPEC, once they put out their publications, obviously there’s other groups out there doing similar stuff, all that gets into the market and it’s like new information, you know, it’s like, um, the market reacted, the price will react to all
That stuff. Right, right.
Interesting. So, um, what about the weather response? Let’s to talk about the Texas, uh, weather in February, shut down production and shut down refining and a member. We had a conversation, you said that refining tends to come back slower than production. Right. So that’s,
That, that has been the case. Um, so far, uh, production is just about back. I think it, last week, it was 10.9 million barrels a day. And, uh, refinery capacity has, um, not, it’s not coming back all the way, although, uh, refiners have done a better job than what I thought they would do in, uh, in getting in getting, um, capacity back, uh, in the, in the U S Gulf in the us Gulf coast, the, yeah, I thought it wouldn’t be till, and it’s not all back. Uh, but much of it will be back, you know, probably by the end of this week. And then I’m thinking, uh, by the end of March much will, you know, w we may be back completely, but it has come back a little, a little bit faster than, uh, the one I thought, which if this is the key thing has not, it did not come back anywhere near fast enough to prevent a, so far crude stocks have built over the last two weeks, they’ve built 35 million barrels and light products have drawn gasoline and strong 26 million over the last two weeks.
And this load has drawn 15 million of over the last two weeks. So we have seen the response we thought, we’d see, although, you know, in my, in my numbers, I didn’t have anything like a 35 million barrel build. I, you know, I thought crude stocks would build 15 million, maybe 20, or that kind of draw in, uh, in gasoline. So we’ve, or this low, we’ve lost a lot of supply, uh, for, uh, for light products. And, um, you know, gasoline is looking really is looking really interesting. Stocks of gasoline are 18 million below the, uh, the five-year average and we’re heading right into the driving season. So, um,
I, which is, uh, you know, it’s the draws and gasoline stocks are mainly due to the refinery outages, but there’s been some talk that actual gasoline demand is picking up already. I mean, do you, do you, uh, do you see that yet?
Well, I think it’s picking up, I mean, last week there was a, the one week was, uh, I think it was a nine, but that’s just one week. And as we’ve spoken many times, you can’t pay all that much attention to the, to the one week, but vehicle miles traveled is up. And, um, you know, some of these mobility index, leading indexes are, are showing gains, but if you look at the four year average, I’m sorry, the four week average where we’re still like 800,000 below the five-year the five-year average. So it’s, you know, we’re, we’re still lagging pretty, pretty badly, but yeah, I think gasoline demand is picking up. I don’t think it’s going to get till to 2019 levels for, uh, I don’t know. I mean, I might, it might not get there this summer, but, you know, there are some real raving gasoline bowls who think that, um, you know, stocks that demand is going to, we’ll be ahead of 2019 levels this summer, but, you know, for that to happen, we need, we need jobs. We need, um, you know, we need the wider distribution and the vaccine certainly, and the stimulus, the stimulus package to kick in, and we need these service jobs through, um, to reappear because it’s still tends to, you know, there’s, unemployment’s what, 10 million plus another, um, 10 million, whatever, the, whatever the total number is, you know, P people need to drive to their jobs. And then, um, you know, we’ll, and then we’ll see, you know, if, what, whether weather where we are in the animal spirits
Meter, you know, in the U
S whether people just, you know, drive like crazy this, you know, this the summer, you know, we’ll see that. But then, you know, there, there’s still the issues in Europe, uh, with the lockdowns now in Italy and then problems with vaccine distribution. So, so that, you know, if, if this surplus gasoline in Europe and a tightness here, that stuff comes here, it’ll find its way. Right, right. So that, that’s a, that’s a bearish factor. Look at,
Well, personally, anecdotally, I, um, get my neck shot, number two, March 20, and then I’m going to fill up the car with gas and head towards Mexico. And I live in New York. So you’re driving to Mexico. I’m going to just thinking I’m going to be driving somewhere. I don’t know, getting the hell out of here, but, you know, international travel is still nowhere to go, except maybe the UK, I mean, UK is doing well. Israel is doing well, Faroe islands, Taiwan. I mean, there’s, there’s a handful of places. I mean, Europe is still going into lockdowns. It seems Italy. Um, so it’s gonna, I think it’s going to be more gasoline. I mean, you could fly a lot of places in the United States as well. I think that that’s a good point, Jen, you know, I think it’s going to be gasoline.
We may, yeah. That, that we may just drive within the country. It may, a lot of the, a lot of the borders are still closed. Right. You know, and then obviously is closer, closer that we get to, uh, the summer in Europe is still struggling. You know, that that’s going to hurt their, uh, their tourist business from the U S I w I would suspect.
Yeah. But it’s, you know, there’s, there’s a lot of cash in the hands of some people, you know, a lot of people,
A lot of people savings rates or savings rates are huge. Right. Yeah. So people, people didn’t travel last year, so they, you know, I guess they person, you know, and they’ll have stimulus money. So, yeah, again, I guess that’s the, the, uh, you know, that’s the animal spirits factor. So, um, but Jim won’t want that one. One other thing to add is that, uh, you know, you look at the, so we’ve got the supply that we have, the free soft supply, you know, refiners will be increasing crude runs, uh, to try to rebuild some of that gasoline supply. As we head into may, may and June, they’ll probably increase it more than what we had expected, uh, which is, you know, definitely constructive for, for crude and a little bit bearish for a well bearish for, uh, for products. The cracks have gone straight up the gasoline cracks, the April crack traded over $24 last week, so that, you know, that that is very attractive for, uh, for refiners to, to start cranking it up once they get their plants up
And they, we know what they can do when they get rolling.
Right. We do know what they do know what they can do. It’s it’s
Jerry crushed, any rally and product crushed, cross Jedi margin anymore. Exactly. Any margin. Right. So, um, let’s talk, let’s talk about inventory draws. Um, the EIA was kind of, you know, they’re, they’re pretty matter of fact, but they, it sounded like a very emotional when they were talking, what was going on in February in terms of, uh, uh, stock draws. I mean, they’re saying, uh, like the strongest draw since the post pandemic, in terms of, I think it was talking about total supplies, maybe it was, uh, maybe I’m looking at, I think it was total supplies anyway, does that, what, what are you looking at for inventories going forward, which we’re still drawing now, right. Overall, yeah.
Global, global inventories continue to continue to draw. We probably, you know, last year we built probably 900 to a billion barrels in the first half. And we, we drew, uh, per day, no, total, total,
A billion, sorry,
B uh, and then, you know, second half, at least our numbers, we had about a 1.6 million barrel, a draw, um, average over the, over the second half of the year. So we removed some of that surplus. And, um, we’re, we’re thinking that first quarter is going to be another 2000002nd quarter, again, that a lot of this is what OPEC plus is going to provide, but conservatively, we think second quarter will be a million and a half to two. So by the end of second quarter, we, we will have eliminated that whole, that whole surplus, um,
Um, just as we might be going into a little demand pickup,
Right. And then second half demand should really, the demand should be picking up again, depending on a lot, a lot of, a lot of factors, but OPEC production should be picking up and non-OPEC production also will be, uh, we’ll be picking up, but, you know, our numbers are showing like a half million, 2 million barrel a day draw. So still drawing in the second half of the year, I just saw, you know, I just saw a balance that had stocks drawing four and a half million barrels a day in the first, in the first quarter. Um, I, I don’t, uh, I didn’t agree obviously, but, uh, you know, there there’s some, but that, that balance, that that group was looking for, you know, they were, they were really bullish on demand and flawed in the second half, we would be above nine, 2019 demand numbers.
So does that mean we have prices today that reflect that already? Or does that mean, and, and say, maybe we’re seeing the highs of the year you get given your, your, uh, uh, outlook. And does that mean that you see them moderating in the second half or, or what are you looking at? I think they’re going to moderate
In the, in the second half. I think we’ll be, we’ll be a lot, a lot more balanced and see prices down, you know, into the, into the lower sixties. But the second quarter, you know, if they, if OPEC doesn’t increase production for April, April, or may, that’ll, that’ll still, uh, for may or June, you know, that that’ll still leave a pretty hefty stock draw. And, um, so I, I think there’s still room to go to go on the upside. I’m not, I don’t think we’ve seen the, seen the highs depending on, you know, the depending on air, uh, you know, what, what the group does. And I, I guess, you know, what we’re saying is that they really have, you know, they do have control of the market here because the non OPEC response is not quick enough. You know, the U S response is not, it’s just not quick enough.
Right. Uh, and some of the other non OPEC producers that’ll come on, you know, we’re talking about projects that are, that are, you know, long-term projects, you know, Norway is going to increase production this year. Canada is going to increase production this year. Brazil is going to increase for the auction this year Russia’s and OPEC and OPEC plus producer. But, but just looking at those, the first three, you know, those aren’t like something that, you know, those were all long-term projects, you know, that had been planned for years. You know, the, the, the faster barrels come out of here, you know, they come out of here and we’re not going to, so really, you know, for OPEC plus has the, you know, the Saudis, the Saudis and, uh, Russians have control here in the short term, our frackers are trading gamma in a way, in a funny kind of way.
Yeah. So, so that, that tells me like a potentially move down in the second half of the year as well. Yeah. Oh yeah. I think in the second half, as, as you know, Mo first of all, as a, as I say before, OPEC plus has to figure out how to get, you know, get, get some of this spare capacity back to the, you know, back to the market. It’s just, you know, how much, and when, how much cheating we have. Uh, and then of course the, the, you know, what do they do about a ramp? Uh, if, you know, if by some miracle, you know, we’re able to negotiate a return to the JCPO and, uh, you know, sanctions are lifted. Uh it’s it’s possible, you know, that, that that’s possible, but that’s a, that’s a long, that’s a long negotiation. I think there’s some in the market think it’s going to be third quarter. You know, I, I think earliest fourth quarter, uh, the elections in June, but, you know, so Ron has spare there. They’ve got to fit, they’ve got to figure that out. That’s a wild card for sure. Wild card. Libya’s, Olivia’s always a wild card. Right.
So just to kind of maybe wrap, start, start wrapping things up. We’ve talked about the uncertainty in the marketplace, you know, that if you were putting the standard deviation around your, your estimates or anybody’s estimates, it’s much bigger than it’s, it’s always been big because it’s oil and, um, it’s much bigger this year, last year. W w some of the uncertainties, what would be, what the world vaccination rates.
Yeah. The world van, certainly. Yeah. The world, the world vaccination rates, uh, on the demand side, um, you know, certainly the, the economic where we are on, uh, on GDP growth.
Yeah. How quickly jobs come back, that people quickly
Jobs come back, how consumers, how consumers behave, Jim, you mentioned, how, how are they going to, you know, these high price gasoline, is there going to be any less density effect? What about the effect on consumers? You know, India was furious with the Saudis. Um, and they’re, you know, they’re one of the Saudi’s best, best clients. Right. So, you know, they’re, they’re certainly, yeah. And they’re threatening to go elsewhere. So not that there is, you know, that they’d have to come here or, you know, they’re talking about Kiana, but that’s, yeah. That’s a 20, 22 story. Um,
Good news, bad news. We found a lot of oil off shore COVID situation, but yeah.
You know, speaking about Kiana though, they, they are having, they, they are expecting that I think productions like 50 or 60 a day now, but they are, you know, they are talking up the potential for 200 a day next year, they are building a new FPSO. And, um, yeah, I, they could, you know, they could, they could become a, they could become a, uh, a force 200 a day is, you know, that’s not bad.
Yeah. That’s, um, it’s, it’s interesting this, this OPEC, uh, policy where they, you know, they have to think about market share right now they’re, they’re thinking about price because they feel like they can not going to lose much market share right now. But at some point, you know, it’s like, what, what price is it where they, they get out of balance in terms of more oil coming in, you know, demand waning. It’s, they’re, they’re almost in a sweet spot right now, or right. But at least they see it as a sweet spot and they’re trying to maximize, uh, uh, the price and then maybe down the road, you know, and I see more people coming in producing. Um, that’s when they start going a little crazy on the other side. Right.
But, you know, certainly you look at the Saudis, they’re making these months a month calls. They used to talk about, you know, five, 10, 20 year plans. You know, they allow, allow they’re on, you know, they really are the sweet, they really have become the short-term suite
Teachers. And basically
If you look at where they used to be, you know, and they, they give, they give you this whole view, right. Their asset in the ground, and you know how to protect it, uh, over, over 20 or 30 years. And now they’re, you know, now this swing and monthly it’s, uh, well,
Yeah, it’s, it’s, uh, you know, we, if you go back to a long-term price chart, I think it’s really hard to point out all the changes in OPEC policy on the market. You know, it’s, it’s almost like they’re, you know, the market is FA uh, ahead of them behind them, but it’s, you know, it’s almost, there’s a lot of other things going on, I guess, is what I’m saying. And sometimes they’re reacting to the markets where it’s happened. It’s not like they can always impose their will. Although in the last year it looks like they, you know, when they decided last year at this time to continue to produce it definitely moved the market. And when they have been cutting, when they surprised the market, as you mentioned, price went up, but it’s, um, you know, longterm, you know, there’s, it’s a supply demand, the economy, all these other factors are in there.
Yeah, definitely. And they also got bailed out by, um, global governments, uh, you know, all the stimulus that the government’s forward into the, into the market, you know, beyond their own production cut backs. Could you imagine if there was no, none of these stimulus market would still be, yeah, clearly it would obviously be much slower.
Right. Right. Okay. So we’ll be looking for this up. So it’s, what is it March now, we’re going into the second quarter and what would you be watching very closely as that you’re going to be looking? I know you look at everything, but, um, is it the weekly numbers? Will you be looking for pick up in demand?
I think the weekly, so we’re going to be really, you know, will be really important. I know these, uh, you know, these mobility indexes, you know, some of them have value, but a lot of them are just, you know, uh, really noise. You know, Jim, I think I read that, uh, the last five days is the most consecutive, uh, the biggest five day number of people that have passed through airports, uh, in the, in the U S right, this is some number, but if you keep reading, it’s, you know, it’s only 38% of, of, uh, right. Pandemic levels. So
Trick, and, and we, I think we increased seasonally around here, and there’s a chart. Somebody has out that shows compared to 20, 20, but also 2019. And we tend to increase our flying around this time. Maybe it’s the spring break kids. I don’t know, like the spring break kids. Yeah.
They clearly didn’t get any memo, but, um, going back to that, but Jen, you know, certainly I think the weekly sunset fuel demand, see if, if that really has, if, uh, certainly one would think, even though we’re only 38% of two years ago, I think that, um, you know, we should be higher given, given more than more of the travel numbers. So watch the jet fuel, we’ll see how refiners and producers are coming out of the, the big freeze and how that, you know, how that normalizes, you know, and then the GDP estimates, you know, we’ll, we’ll certainly be watching that. I haven’t seen the, uh, I know you follow this chimney, Atlanta fed.
Yeah. I follow it. They, they go a little crazy. Um, but I follow it to help with the, the new information that comes out. So it’s basically, I’m looking at the change. So today we had a, um, a lo uh, a decline in retail sales and today’s happens to be the day where the Atlanta fed, uh, updates their numbers. So you can see from the last time they updated to this to today, what it does to GDP, it’s been, it’s been falling, uh, from, I think they were close to 10% now. I think they’re like an eight, 8%, probably a little lower after today. And then there’s a New York GDP now cast that comes out once a week. And, um, they’re usually, they’re usually underplay. Uh, they’re, they’re, they’re, they’re like, uh, they’re not as if, if the market, if the condoms growing their estimates a little lower than the actual, if it’s falling apart, their estimates a little lower than actual and their, their numbers pretty high.
I mean, as I think it was up close to the Atlanta feds, uh, as well, but, um, they’re mainly good for the change in, you know, I don’t have, uh, an econometric model or, uh, so I want to see, you know, I’ll, I’ll listen to some of the financial news and you get a lot of talking heads go crazy or something, and then you look, well, how did this number actually effective GDP forecast of a pure model? And, and, you know, maybe it wasn’t that much, you know, so that’s what I use it for. It just as a check, the absolute number can get, as I said, especially Atlanta fed can get a little crazy.
Um, and getting back to what we’re watching, obviously China’s, uh, is, is key there March import or versa came in a little bit higher than what I thought it would, what I thought it would come in at. Uh, and we’ll see, you know, they’re, they’re very well supplied, uh, in terms of crude inventory. So we’ll see whether or not, you know, where the Chinese go and now the prices are up here, you know, are they going to continue to buy or, or are they going to back off the market? They’re there well enough supply that if they don’t want to buy, they don’t have to. So that, that I thought that was beginning to take place in March, but the important numbers came in, came in stronger. We’ll see where April, you know, or where April or may, uh, imports go. And, and, um, you know, the, this also, there’s a lot of new refinery capacity though, that we’ll be watching, you know, what the effect of, of that’s going to be globally. Um, margins are still, you know, they’ve improved in Europe, but they’ve, you know, it just went off in Asia has been lackluster there. They’re good in the U S relatively good, you know, they’ve really, they’ve really improved a lot, uh, in the U S but the rest of the globe, not, not so much.
Yeah. It’s a, it’s a with crude oil and the, and the cracks, we seem to have a lot of excess capacity just itching to come on. So we’ll see, we’ll see, uh, again, that’s, that’s how quickly we get these vaccines out there and, um, how much people fly or drive or do both. Right, right. Okay. Anything, uh, anything else you want to talk about? The, uh, Evie story that was in the New York times magazine.
That was actually what we’ve been talking about. We’ve been talking about that. We’ve been saying it isn’t like all of a sudden, you know, you can wake up and the whole world is, is, you know, is Evy, you know, I think we’ve met, you know, we’ve said this, a bill is 1.2 billion internal combustion engine still on the, still on the roads today in 2021. Are they all just going to disappear? No.
I mean, it’s one of those things where the growth looks impressive, but it’s, as you’ve been saying all along that the number is really low and they also sort of made an argument that the turnover’s going to be slow because the cars they make today, people hold on to them longer. Right. They’re better built in your head. Yeah. And there’s still gas, guzzling, a gas guzzling, but gas using cars that are being sold in a big number today. And those, you know, it’s not gonna be maybe 10 years from now. You’re still gonna have, like you said, but I’m just saying that it’s funny to see them. Right. Finally, somebody woke up, somebody noticed that it is in a green world. Yeah. Yeah. I mean, we’re heading that direction, but
We had to give that direction, but it’s not, it’s not going to happen, uh, all at once. I mean, we, we’re clearly in the, you know, the, this energy transition is, is going to take place, but it’s going to be, you know, decades before we, before we get there. And I think, you know, a lot of the market has just written off petroleum and I think petroleum is going to be an important factor, you know, for still, for many and for many years to come.
Yeah. I think, um, whenever I run into my last and final expiration, they’ll still be crude oil trading.
There’ll still be crude oil trading, and they’ll still be, uh, yeah, there will be. I mean, you know, w we may not be using quite as much, or maybe we’ll be using them
Our last pod. And we have to figure out when, what, at what point on the way down that we stopped doing monthly podcasts, like, did we say, we’re going to, we’re going to keep doing these till the last barrel. Okay. Production was one, where’s it going? Well, you’ve been covering this spark a lot longer than me, but, uh, I’m catching up,
Definitely catching up, I think. Yeah. That’s a good point. I don’t, I don’t think for productions one. All right. All right. Next tick is zero, but it’s really two rallies from there.
One final thought anything keeps. Yep. Well, my, uh, let’s see.
Well, what would be my, my one final thought on, uh, the, this, uh, the second quarter? Well, one thing we did, we also did not talk about Jim is, is, um, diesel demand globally has been pretty solid. Right? And, um, you know, I think the wildcards are our gasoline demand still, you know, is that, is that going to improve globally? Not only here in the, in the, uh, in the URS, but these all demands are pretty solid and petrochemical demand has, has really been good. Um, so, you know, th they may be, they may be carrying the, uh, a lot of the load going forward on gasoline. Gasoline demand certainly is going to, is going to, uh, is going on
Proof. Yeah. Along with, uh, my, my, uh, long cross country trip in a car, I’m going to stop at a mall. I want to buy some stuff. Cause it, cause there’s the whole streets covered with trucks from Amazon. So I’m going to, I’m going to use gasoline and I’ll tell you before I do that, I’ll tell you, so you can put on a gasoline to diesel spread, the widow maker don’t make her great. Thanks, Andy. All right, we’ll catch you next month.
What else, Andy?
Again, our website is www.commodityresearchgroup.
You could reach me at alebow at commodityresearchgroup.com.
And, I put some articles of interest. Basically if you’re into markets, a lot of times it’s on oil. There’s other things as well, check out our blog and then connect on LinkedIn. I’m fairly active on LinkedIn as well. Jim love the stuff you’ve been posting.
Okay. Signing off.