1. Aluminum stocks jump

- “The rally across commodities has gotten ahead of fundamentals with the exception of metals,” Goldman Sachs said in a note.

- Investors owe a great deal of thanks to the Federal Reserve, which has been pumping trillions of dollars into financial markets.

- “A rising (monetary) tide lifts all boats,” Commerzbank said in a note. The bank went on to add that this “would also apply to base metals, almost all of which are up on the back of another massive expansion of liquidity by the US Federal Reserve and the US government’s planned infrastructural programme.”

- That has aluminum prices back up to around $1,600 per ton again.

- However, Commerzbank said that it does not think the enthusiasm is backed up by the data. “Aluminium stocks in the LME’s warehouses rose more sharply yesterday than at any time in over four weeks,” the bank said on Wednesday. “At 1.62 million tons, they currently find themselves at their highest level in three years.”

- Aluminum inventories are up 67 percent since mid-March.

2. Renewables overtake oil and gas

- Clean tech is expected to drive $1 to $2 trillion in annual investment going forward, and renewable power is expected to become the largest area of spending in the energy industry as soon as 2021, according to a major new report from Goldman Sachs. For the first time in history, renewables are set to attract more investment than oil and gas.

- Green infrastructure and renewable energy are 1.5 to 3 times more capital and job-intensive than oil and gas, “making it a strong example of a pro-growth pro-environment public-private collaboration,” the investment bank said.

- “We estimate that an acceleration of the energy transition towards the goals laid out in the Paris Agreement could lead to net job creation in the next decade (to 2030) of 15-20 mn jobs in the global energy industry,” Goldman analysts said.

- Another crucial data point: Goldman says the cost of capital for oil and gas is much higher than that of renewables, with hurdle rates for oil and gas at 10 to 20 percent, with that of renewables only 3 to 5 percent.

- “This shifts, in our view, the stranded asset debate from a demand problem to a cost of capital problem and could lead to an energy transition through higher oil & gas prices,” the bank concluded.

3. Gasoline demand showing signs of V-shaped rebound

- The IEA said that oil demand could fall by 8.1 mb/d in 2020, with a pronounced contraction in the second quarter. Other analysts have that demand loss a bit higher.

- U.S. gasoline demand is showing signs of a rapid bounce back. Pre-pandemic U.S. gasoline consumption averaged nearly 10 mb/d. That fell to a low point of 5 mb/d in April, but has bounced back to 7.9 mb/d.

- Still, there is no guarantee that gasoline demand gets back to pre-COVID 19 levels soon. COVID infections are rising across a bunch of states in southern U.S. states and could stall the rebound in consumption. At the same time, millions of jobs could be permanently lost.

- Globally, many countries, including China, have exhibited a similar rebound in gasoline demand.

- The scars on jet fuel demand, however, could be serious and longer-lasting.

- “In our view, jet demand will likely suffer from an L-shaped recovery until a vaccine or effective cure become available,” Bank of America Merrill Lynch wrote in a note.

4. China stocked up on oil

- The world added around 1 billion barrels of excess crude oil into storage since January.

- China absorbed around 440 million barrels, according to IHS Markit. “The world has never seen an increase of this magnitude in such a short period of time. Crude oil in storage has increased around the world as demand has fallen this year. But no geography—not even floating storage—matches the scale of China’s inventory increase,” IHS Markit said in a statement.

- The reason for this was the way that Beijing responded to the downturn.

- “This buying reflects the incentives created by the government policy of flooring petroleum prices when crude fall below $40/bbl (while preventing excess refinery profits),” Goldman Sachs explained in a note. “This leaves refiners preferring to import products to sell domestically while stockpiling crude and operating at low utilization, leaving them able to run discounted crude (and keeping the excess margins) once crude prices rise above $40/bbl.”

- Once prices rise to $40, or storage maxes out, then the pace of China’s imports will slow. Goldman says that could be as soon as July or August, but sooner if prices rise above $40.

5. EVs continue to drive cobalt and lithium demand

- By 2030, EVs are expected to have batteries that can drive 350-400 kilometers on a charge, and have a capacity of 70-80 kWh, according to the IEA.

- “The demand for the materials used in electric vehicle batteries will depend on changing battery chemistries, nickel cobalt aluminum oxide (NCA), nickel manganese cobalt oxide (NMC) and lithium iron phosphate (LFP) cathodes for lithium-ion (Li-ion) batteries being the most widely used today,” the IEA said.

- In 2019, demand for cobalt topped 19 kt, while lithium demand stood at 17 kt.

- In the IEA’s central scenario, cobalt demand skyrockets to 180 kt/year by 2030, with lithium soaring to 185 kt/year.

- But in the more aggressive Sustainable Development Scenario, which assumes faster uptake of EVs, cobalt and lithium demand are more than twice as high, each surpassing 350 kt/year.

6. Global oil supply bounces back, remains 5 mb/d lower than pre-COVID levels

- In May, global oil supply was 12 mb/d below April levels, largely due to the OPEC+ supply cuts and the U.S. shale shut-ins.

- Global supply is expected to decline by 7.2 mb/d for the full year, relative to 2019 levels.

- The IEA sees supply only coming back modestly, rising by just 1.7 mb/d in 2021. At the same time, demand rises by 5.7 mb/d in 2021.

- That sets up a rather substantial deficit next year, although there is the non-trivial matter of whittling away a billion-barrel inventory overhang.

- At the same time, the rather large potential deficit could quickly be erased if OPEC+ unwinds its cuts faster than assumed.

7. Plunging rig and frac spread count

- U.S. oil production has declined by around 2.6 mb/d, according to EIA data.

- Some shut-in wells are expected to come back online, perhaps up to 0.5 mb/d, according to a Reuters estimate. But the IEA says that overall U.S. production will nevertheless fall by 0.3 mb/d in June.

- The EIA’s Drilling Productivity Report sees another 0.1 mb/d decline in July from top shale basins.

- “With upstream budgets cut by nearly half compared with earlier guidance, activity levels are expected to remain weak,” the IEA said.

- The rig count is down below 200, down nearly 500 rigs since March, a decline of around 70 percent.

- “If well completions do not rebound from May’s lows, however, US oil production will continue to fall next year,” the IEA said. The agency sees an average decline of 0.9 mb/d for all of 2020, followed by another 280,000 bpd decline in 2021.