The Phil Flynn Energy Report: February 28, 2020

Oil prices are falling out of control as fears continue to spread that coronavirus is out of control. While a cut off of 500,000 barrels a day oil exports by Saudi Arabia to China, and a commitment by OPEC to meet March 5 and 6 to try to stabilize the market seemed to offer some temporary support the failure of the S&P 500 to try to rebound from the 200-day moving average and new cases of the coronavirus made the rally attempt futile. Reports overnight suggest that OPEC is discussing a 1 million barrel a day production cut instead of the previous 600,000 barrel a day cut they were taking previously. Whether that will be enough to calm a market that is out of control remains to be seen. The reports did rally oil about a dollar from the low.

What will it take to restore calm to the market? At this point, the fear of the unknown is making that hard to judge. We know one thing that the odds of an interest rate cut from the Federal Reserve is risng quite dramatically. According to CME Fedwatch the odds of a rate cut in March hit an astonishing 96.3% . That is astonishing because the odds of a rate cut were only 8.9% a week ago.

Yet, is a rate cute the cure for the virus? You will have to cut rates to ease the pain but for virus, fears grow it is not the total cure. As for trading today just remember the line from the movie “Butch Cassidy and the Sundance Kid” “there are no rules in a knife fight.” In other words, look for moves to break technical rules. Don’t get complacent. Control your risk. There can be some big swings and gains made and even bigger losses if you are not carful. Don’t have preconceived notions and put your stops in. This is the wild west! That is the best advice for short term traders. Deep pocket speculators that have more money then President Trump will be using this as a scale down buying opportunity. Option values are inflated and yet writing them is very dangerous unless you have almost unlimited funds to back you up. Still those that have money more than likelky can make money, yet many of you might want to stand aside and wait At some point this is going to be the buy of the decade unless of course it’s the end of the world and then it won’t matter anyway.

Natural gas can’t get a break either. Forget about big LNG exports for a while. Plus the EIA report did not help. The EIA reported that working gas in storage was 2,200 Bcf as of Friday, February 21, 2020, according to EIA estimates. This represents a net decrease of 143 Bcf from the previous week. Stocks were 637 Bcf higher than last year at this time and 179 Bcf above the five-year average of 2,021 Bcf. At 2,200 Bcf, total working gas is within the five-year historical range.