Oil Riders on the Storm.

Oil traders are going to have to decide whether they’re going to focus on the rising economic storm that is ripping through global financial markets or the more traditional weather storms that could have a major impact on energy prices over the next few days. Economic turmoil is putting oil on track for its first quarterly loss in two years as the market focuses on the potential coming recession inspired by aggressive Federal Reserve policy and is not focused currently on the undersupplied supply squeeze that is facing the world this winter. The surging dollar and the fact that the British Pound made a historic low are not adding to confidence that oil can ride out this storm, yet the weather may force traders to put in weather risk premium going into the weekend.

Fox Weather reports that, “Tropical Depression Nine has formed in the central Caribbean Sea, and the Florida Peninsula is already included in the cone of uncertainty of the system that’s likely to become either Hurricane Hermine or Ian in the days ahead. As of early Friday morning, Tropical Depression Nine was centered more than 600 miles east-southeast of Kingston, Jamaica, and 1,100 miles east-southeast of Havana, Cuba, and had maximum sustained winds around 35 mph. The newly formed tropical depression was moving west-northwestward at 13 mph.

With the storm probability increasing in the Gulf of Mexico the next thing we would expect to hear is that some of the gulf oil producers will be battening down the hatches and shutting down production. Depending on the track of the storm, we will assume that they will start moving people off of oil platforms leaving only essential personnel. Offshore oil and gas operators may start evacuating platforms and rigs in the Gulf of Mexico in preparation for the storms.

Depending on the track of the storm, we could also see exports of oil from the US halted and that comes at a time when the US is exporting a record amount of oil and gasoline and diesel to other countries. We are also exporting a record amount of oil from the Strategic Petroleum Reserve.

But it is just not the Gulf of Mexico where we have to be worried about the weather. Dan Molinski at the Wall Street Journal reported that, “Major oil refineries in Texas and Louisiana haven’t been hit by any tropical storms or hurricanes this season, but oddly enough a refinery in far eastern Canada near the state of Maine may get hit this weekend by Category 4 Hurricane Fiona. “The latest hurricane track from the Environmental and Climate Change Canada (ECCC) places the storm in direct pursuit of the Port of Halifax and within reach of Irving Oil’s 300,000 b/d refineries in New Brunswick,” Oil Price Information Service says in a report. “While the exact track remains uncertain, ECCC and the Canadian Hurricane Centre have each issued severe warnings for Atlantic Canada and the Maritimes and were forecasting the impacts to be multi-provincial.”

The Saint John refinery, located in Saint John city of New Brunswick province, is Canada’s biggest oil refinery that produces a wide range of products including gasoline, diesel, heating oil, jet fuel, propane, and asphalt. Over half of the energy products produced by the refinery are exported to the northeast US, while the rest are sold in wholesale and retail markets in Eastern Canada.

Back to the Gulf of Mexico. The storm that has just been created has one track going right across Louisiana’s offshore oil port known as the LOOP. The EIA says that the Gulf of Mexico area, both onshore and offshore, is one of the most important regions for energy resources and infrastructure. Gulf of Mexico federal offshore oil production accounts for 15% of total U.S. crude oil production and federal offshore natural gas production in the Gulf accounts for 5% of total U.S. dry production. Over 47% of the total U.S. petroleum refining capacity is located along the Gulf coast, as well as 51% of the total U.S. natural gas processing plant capacity.

Yet the dollar’s incredible surge and recession fears, in the early morning trading storm fears are on the back burner. Oil is getting caught up in the risk-off environment that we are facing and the supply risks, at least this morning, taking a backseat.

OPEC stands idly by as oil prices start to get crushed. Reuters reported that, “Russian President Vladimir Putin and Saudi Crown Prince Mohammed bin Salman spoke on Thursday and praised efforts within the OPEC+ framework, confirming their intention to stick to existing agreements, the Kremlin said. In a statement, it also said the two men had discussed ways the two countries could cooperate to ensure stability in the global oil market. In late July the two nations said they remained committed to the OPEC+ agreement to preserve market stability and balance supply and demand.

Natural gas also rushed after a big surge in gas storage alleviated some concerns about supply tightness going into winter. The EIA reported that, “Working gas in storage was 2,874 Bcf as of Friday, September 16, 2022, according to EIA estimates. This represents a net increase of 103 Bcf from the previous week. Stocks were 197 Bcf less than last year at this time and 332 Bcf below the five-year average of 3,206 Bcf. At 2,874 Bcf, the total working gas is within the five-year historical range.

For natural gas as well as oil and gas, a hurricane can be a double-edged sword. If the storm knocks out the power we will use less natural gas. If the storm does a lot of damage, in the short term it will be bearish for oil but in the long term bullish as states may have to rebuild after the storm. The key thing is that throughout the weekend stay tuned to the Fox weather station and download the Fox weather app for the latest on this storm.

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Call to get the Phil Flynn Daily Trade Levels by calling 888-264-5665 5665 or email me at pflynn@pricegroup.com, you can also open your account today.

Thanks,

Phil Flynn

The PRICE Futures Group

Senior Market Analyst & Author of The Energy Report

Contributor to FOX Business Network