The GERM Report

-Crude gets a boost from the product side

-Despite warnings, holiday travel is on the rise.

Crude oil prices were on the rise once again on Tuesday, despite a batch of negative economic news. West Texas Intermediate was in clear break-out mode. Brent crude oil was up by about 1.6% as of 2:30 p.m. ET to trade at $48.55 per barrel.

With all the head-scratching about a market that looks disconnected from reality, we’re handing the mic over to Tracy Schuchart. She’s a market analyst who explains that demand is there, we just have to look for it.

Crude oil:

Crude oil markets have been firming up along with products. Heating oil, for example, has brought the entire complex up this week as cracks are strong. This in turn is helping refining equities. Although aviation and gasoline demand are down globally, we are seeing demand strength in other sectors that is helping to buoy the market.

Cass Freight:

The latest reading of the Cass Freight Index this week shows shipment volumes rose 2.4% over year-ago levels, crossing into positive territory and improving over last month’s decline of -1.8%. This was the best growth seen since October 2018. Much of that can be explained by a pandemic that has brought about an explosion of e-commerce — retail pending is up 5.2% year-on-year.

Trucking:

We’re seeing another boost in this segment too. Outbound tender volume (OTVI) remains elevated at 26.32%, falling slightly from a peak of 27%, and expected to increase into the holidays – this is a lot of diesel fuel demand.

Propane:

Another surprising market we are seeing demand growth in is propane. Demand for propane sold in retail-sized cylinders is likely to reach about 500 million gallons, up from about 284 million gallons in 2019, as COVID-19 drives dining outdoors.

Transportation:

Another unexpected data point is actually showing up in domestic flights. According to TSA, there were more than 1 million people at US airports on Friday. Saturday’s screenings fell just short of that mark, but were enough to bring the two-day total to 2 million. Although this is still about 50% lower than traveler throughput a year earlier, it is a huge improvement from just over a week ago.

We’re finding that demand losses in traditional places are being replaced by strength in others, and the markets are reacting in kind.

Tracy Shuchart is the energy and materials strategist for Hedge Fund Telemetry in Quebec, Canada. You can find more information about Tracy here.