The Phil Flynn Energy Report: February 07, 2020

Oil prices can’t shake the coronavirus. Oil prices are weaker even after OPEC got Russia to finally agree to a production cut.

Reuters reported that “Russia supports a recommendation to deepen OPEC+ global oil supply curbs to compensate for a drop in demand caused by the coronavirus, Foreign Minister Sergei Lavrov said on Thursday. A technical panel that advises the Organization of Petroleum Exporting Countries (OPEC) and its allies led by Russia proposed a provisional cut in output of 600,000 barrels per day (bpd), three sources told Reuters earlier. That is about 0.6 percent of global supply and would extend the current curbs of 1.7 million bpd.”

Yet Coronavirus concerns are again weighing on global markets. Conflicting reports about how well the virus is being contained is raising fears about economic growth. The death of the Doctor than warned about the illness and concerns that China is hiding things from the world are erasing the optimism that we saw in the market yesterday.

Nat gas could not rally even after a so-called bullish 137 bcf draw. No winter and record production is creating problems for producers. Naureen Malik of Bloomberg writes that “- Natural gas prices in America’s biggest shale basin are going negative again as output surges faster than pipelines can be built to take it away. Gas for March delivery at the Waha hub, located in the Permian Basin of West Texas, has been trading below zero over the past week,” Bloomberg Fair Value prices show.

She says that the rout is poised to get even worse as supplies swell, according to commodities broker OTC Global Holdings. For more on the U.S. gas market slump, Permian gas prices went negative for the first time in the spring of 2019, rebounding when Kinder Morgan Inc (NYSE:KMI).’s Gulf Coast Express pipeline started up in the fall. History is repeating itself this year as gas output from the basin continues to soar, with the next major conduit not expected to enter service until later in 2020. Permian explorers extract the fuel as a byproduct of oil drilling, making them less responsive to tumbling gas prices.

The dearth of Permian pipelines has contributed to an uptick in flaring, the process of burning gas off instead of capturing it from the well. Flaring, which produces carbon dioxide, has come under increasing scrutiny amid growing concern about climate change. Weaker prices in the basin, though, could be a boon for would-be exporters like Tellurian Inc. and NextDecade Corp. that plan to tap Permian supply and ship it to Europe and Asia.