It seems the experts are finally catching up to me.  The US Energy Information Administration has revised down its outlook for fuels demand due to the coronavirus outbreak and it’s looking bleak (for producers) and great (for consumers).

“EIA estimates that COVID-19 will reduce China’s total petroleum and liquid fuels demand by an average of 190,000 b/d in 2020. This forecast is based on estimates of three separate components (Figure 2):

  • The reduction in demand for petroleum and liquid fuels caused by the general decline in Chinese economic activity as measured by gross domestic product (GDP);
  • The volume of foregone jet fuel consumption in China caused by flight cancellations; and
  • The additional impact on China’s demand for other transportation fuels.”
(Excerpt from This week in Petroleum, Feb. 12th, 2020)

Another factor they cite is the lower-than-expected heating fuel consumption caused by our warmer than usual winter (global warming?).  However, the extent of China’s lower consumption is captured in their graphic below.  The lower projections are based on the forecast hurt the virus will affect on China GDP – and despite the optimists and those simply in denial, China is a huge part of the global economy these days.

ChinalowerfueldemandEIA

The futures prices (as mentioned in previous posts) have been declining for these same reasons.  It’s a shame that the gasoline prices never seem to fall as much as the crude price – or at least it sure doesn’t feel like they do when I gas up.

CrudeInventoriesFeb2020Those in denial (the stock market?) are insisting things may slow down, but they will inevitably get back to normal.  TRUE DAT.  But, when the negative comparisons (lower economic activity, lower revenues and earnings etc.) start registering over the next month or two these same doubters will panic and go risk-off; selling like scared rabbits.

When we begin to see inventory builds (not yet) then investors will awaken to the reality.



 

 

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About the Author

Malvin Spooner is a veteran money manager, former CEO of award-winning investment fund management boutique he founded. He authored A Maverick Investor's Guidebook which blends his experience touring across the heartland in the United States with valuable investing tips and stories. He has been quoted and published for many years in business journals, newspapers and has been featured on many television programs over his career. An avid motorcycle enthusiast, and known across Canada as a part-time musician performing rock ‘n’ roll for charity, Mal is known for his candour and non-traditional (‘maverick’) thinking when discussing financial markets. His previous book published by Insomniac Press — Resources Rock: How to Invest in the Next Global Boom in Natural Resources which he authored with Pamela Clark — predicted the resources boom back in early 2004.

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