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Stock Markets Poised For Another Weekly Loss

Friday, Sep 25 2020
Market Talk

Energy prices are stumbling out of the gate to start another trading session without much going on to drive the action, keeping price movements to a minimum. U.S. stock markets are poised for a fourth straight weekly loss, which has added to the downward pressure on energy prices (at least in terms of a negative sentiment about demand growth). That said, equity indices are looking much weaker on a technical basis than energy futures, which still need to break the low end of the summer trading range before we can call for the next bear market.

The forward curve charts below show petroleum prices have dropped in almost equal increments throughout the next three years, keeping the contango curve in place as expectations for a gradual recovery in global demand haven’t changed much during the past month.

While petroleum prices are stagnating, there’s been more exciting action in the renewable space this week. Prices for ethanol, biodiesel and their RINs all have dropped sharply along with crop prices as the U.S. harvest is looking very COVID resistant. Export demand remains questionable.

The Dallas Fed’s Energy survey showed that activity in the sector has continued to contract in Q3, albeit at a much slower pace than the previous quarters. The majority of responding companies anticipate that drilling activity won’t pick up substantially until WTI gets north of the $50 mark, a less optimistic view than in previous months, and also a reflection of the overhand of DUC wells in the region.

A WSJ article this morning estimates that California will need to expand its electric grid by 25% in the next 15 years to power the fleet of electric cars the governor has been encouraging. For a state already unable to keep up with power demand, the task seems to be out of reach. That said, the EIA this morning highlighted the dramatic change in the country’s power production over the past decade as the U.S. moves away from Coal-fired power. The FERC’s recent move allows end users access to wholesale electricity markets, diversifying the grid, as electric vehicles will be able to send their unused power back into the grid.

Click here to download a PDF of today's TACenergy Market Talk.

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