The Energy Report 10/10/18

Michael Blow the Boat Ashore

Hurricane Michael is getting bigger and bigger and the oil and natural gas market is staring to pay attention. Earlier in the week most oil traders were thinking the storm might have a limited impact on production because the track of the storm was away from refineries and major Gulf of Mexico Production Areas, yet that was before this storm turned into a Category 4 monster and rising the sea to levels that could damage some offshore oil platforms with flooding and storm surges.

In 2008, the American Petroleum Institute released a new set of standards for offshore platforms from 70 feet in the 1990s, to 91 feet because of the damage caused by  Katrina and Rita. The Pacific Standard reported that in 2005, when Hurricanes Katrina and Rita tore across the Gulf as Category 5 storms with winds of up to 175 miles per hour and gusts as high as 235 miles per hour, 115 platforms were destroyed and dozens more damaged. Nine months later, federal offshore oil production was still down by 22 percent. Now, while more precautions have been taken a Category 4 or 5 storm could do some lasting damage.

Natural gas is also getting a boost on the storm as supplies are below average and the market is concerned about losing any production. The Bureau of Safety and Environmental Enforcement (BSEE) estimated yesterday that approximately 39.5 percent of the current oil production in the Gulf of Mexico has been shut-in. It is also estimated that approximately 28.4 percent of the natural gas production in the Gulf of Mexico has been shut-in.

Reuters reported that the country’s largest privately-owned crude terminal, the Louisiana Offshore Oil Port LLC, said on Tuesday it had halted operations at its marine terminal. The facility is the only port in the United States capable of fully loading and unloading tankers with a capacity of 2 million barrels of oil.

Companies turned off daily production of about 670,800 barrels of oil and 726 million cubic feet of natural gas by midday on Tuesday, according to offshore regulator, the Bureau of Safety and Environmental Enforcement (BSEE).

Prices wise you may have to balance short term demand destruction with the larger bullish fundamental picture for oil. While most folks are looking for a sizable increase in crude stocks in tonight’s American Petroleum Institute report, we might get a surprise drop as the market adjusts upward last week’s bigger than expected drop in U.S. oil exports. Gas demand should also rebound as strong consumer confidence should offset the rising cost factors.

We also have continuing concerns about falling Libyan oil output. Platts reported that by the end of last week, the Sharara field was producing around 250,000 b/d. However, output is expected to have dropped over the last two days because of security concerns. In September, Sharara was producing around 300,000 b/d.

When it comes to sanctions on Iran’s oil, India seems to be the wildcard. The U.S. is working to help India find alternatives to Iranian oil and so too is Saudi Arabia. Bloomberg Is reporting that Saudi Aramco will supply about 4 million barrels of additional crude to Indian customers for November, according to a person familiar with the matter. That’s on top of their monthly contractual supplies from Aramco. China is also showing signs that they will reduce their purchases of Iranian oil as well.

$75 is mid- point of the October Trading range. We could try for the higher end near $78 this week. We tried the lower end on Monday. I am hearing from Happy Hedgers and Happy Traders! I am glad I could help!

Make sure you are keeping up with the historic Hurricane Michael by staying tuned to the Fox Business Network! Call me to get the latest breaking updates at 888-164-5665 or e-mal me at pflynn@pricegroup.com.

Phil Flynn

The PRICE Futures Group

Senior Market Analyst & Author of The Energy Report

Contributor to FOX Business Network

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