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Free Fallin' - COVID-19, Declining Energy Commodity Prices and What Might Lie Ahead

On Friday, CME/NYMEX WTI Cushing crude oil for April delivery closed at $44.76/bbl, down more than $16/bbl, or about 27%, since New Year’s Day. The declines in natural gas and NGL prices were not quite as severe, but only because those commodities were hit harder than crude during 2019. Even before COVID-19 landed on the market, energy prices were already under pressure from continued record production levels from U.S. shale, weakening demand, a mostly mild winter and a general investor pall over all things carbon. The threat of a global coronavirus pandemic was all it took to push things over the edge. So now what? Of course, nobody knows. But we can contemplate what this all could mean for energy markets, based on what we’ve seen in recent market statistics and price behavior. So that’s what we’ll do in today’s blog.

Let’s start with some hard facts, namely, what has happened to prices. Figure 1 shows crude, gas and NGL prices — a basket of Mont Belvieu NGLs — since January 2019. The red portion of each line highlights what has happened so far in 2020. As indicated in the graph to the left, crude oil has dropped from $61.18/bbl on New Year’s Day to $44.76/bbl on Friday, for a decline of $16.42/bbl. That followed 2019, when crude was up 16% from January through December. Natural gas (center graph) is down 21%, or $0.44/MMBtu, since the start of 2020, but that was after a bruising 2019, when prices fell 26%. NGLs are off only 16% so far this year (graph to right); they also had a hard time in 2019, with prices down 15%.

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