The Energy Report 09/14/18
Downgrading the Storms
In a week where the U.S. became the world largest oil producer, and saw U.S. oil demand hit a record high on a 4 week average, the market must continue to focus on the risks from Mother Nature.
Oil prices pulled back yesterday from resistance as the market reduced the risk of a tropical depression in the Gulf of Mexico as well as downgrading Hurricane Florence that has hit near Wilmington, North Carolina as a Category 1 Hurricane. NPR reported that although downgraded to a Category 1 storm, the hurricane has grown larger and slowed its march inland — factors likely to contribute to potentially catastrophic flooding. More than 320,000 power outages were reported across North Carolina and nearly 4,400 in South Carolina.
While the Gulf of Mexico (GOM) may have been granted a reprieve in the short term, a very active Atlantic Ocean has more storms that can impact oil operations not only in the Gulf but even in Europe in the North Sea.
A tropical wave Invest 95L in the Gulf of Mexico continues to fall apart. Some models earlier in the week had the storm turning into a tropical storm that could have hit near Galveston Texas. Yet, the National Hurricane Center(NHC) lowered its chances for development from 50% overnight to 30%. The NHC now says that the wave only has a short period of time to develop into a tropical depression before it moves inland over northeastern Mexico and southern Texas later today.
But that does not mean that the GOM is in the clear. Tropical storm Isaac, a former Hurricane, could be headed into the GOM next week. It has weakened a bit because of Caribbean Sea sheer, but top forecaster Michael Schlacter warns that its future impacts to North America remain alive.
Then you have Tropical Storm Helene that was downgraded to a tropical storm but could be heading towards the North Sea and that could impact the Brent Market. Tropical Storm Joyce also looks like it might have ambitions on Europe. Than you have a real possibility of future classifications of “KIRK” & “LESLIE” possible this coming week according to Schacter.
So, with all the storm talk, we left out of our report that U.S. oil demand is at a all-time high. While we will see major demand destruction from this storm, it is important to note that behind these dark storm clouds, the US economy is rocking and so when North Carolina rebuilds it should come back better that ever. When we start to rebuild we will see oil demand rebound big time.
Talk from the International Energy Agency about the fact that Global oil production hit an all-time high and increased OPEC oil production weighed on the market yesterday. Yet, with U.S. oil demand at an all-time high and the fact that Global demand is much stronger than the oil bears predicted, the market may be underpricing this market. With looming oil sanction on iran, unrest in Libya, and the failed Venezuelan socialist state, spare global oil production capacity will be at an all-time low.
The Admiration Society. Energy Sec Perry is meeting with Russia and instead of colluding with him he is appealing to them. Thursday, Perry said OPEC, Saudi Arabia and Russia would be much more admired if global oil prices do not spike once sanctions kick in on Iran. Russian Energy Minister Novak Thursday said while U.S.-Russia relations are uneasy, there is some common ground on energy. In the meantime, the rise in August global oil output may be giving the market a false sense of security about the ability of the globe to make up for lost supply.
We said that the Double Bottom in Mid-August was probably the low for the year. The Storm oil price surge and retreat has done nothing to change that. We still target $84 by end of year. Still there are storm risks that may cause us to alter the time frame either closer or further away.
Nat gas will see major demand destruction as well as the impact from a bearish EIA report 69 bcfs! Sell rallies!
Prayers for all of those impacted by the storm and all of the workers that are saving lives and property. Stay tuned to the Fox Business Network for all of the coverage. Call to get my daily trade reports at 888-264-5665 or email me at email@example.com.
The PRICE Futures Group
Senior Market Analyst & Author of The Energy Report
Contributor to FOX Business Network