Disasters all around

September 20, 2017 09:20 AM
Daily Energy Market Analysis

Oil prices are rising on bullish supply data from the American Petroleum Institute (API) and talk that the joint OPEC/non-OPEC Ministerial Monitoring Committee (JMMC) on Friday night set the stage for an extension of the existing production cut agreement as compliance with the current deal is starting to improve. Yet behind the supply and demand talk, the market cannot ignore the potential impact from Hurricane Maria, Hurricane Jose and the magnitude 7.1 quake in Mexico that struck on the 32nd anniversary of a 1985 earthquake that killed thousands. According to U.S. Geological Survey, the epicenter of the quake was near the town of Raboso, about 76 miles southeast of Mexico City.

The death toll is continuing to rise in Mexico and its impact may just be beginning to be felt by some markets. Mexico is a key supply chain and manufacturing center and the damage increases the risk of supply-chain disruptions. The United States, despite wanting to rewrite NAFTA, still depends on intermediate goods imports from Mexico. This could cause an impact on US manufacturing as they rely on Mexico to produce many parts. Every US state imports goods from Mexico so it may impact the availability of some products. It is not clear whether petrochemical facilities and refineries were damaged by the quake but PEMMEX, the state-owned oil company, put into place emergency protocols. Our prayers go out to Mexico at this terrible time.

And still, the disasters continue. Joe Bastardi is a professional meteorologist and weather forecaster and he said yesterday on Fox News Your World with Neil Cavuto that Hurricane Maria could be the worst natural disaster to ever hit Puerto Rico. It could also wipe out oil and gas storage tanks in Saint Croix. Hurricane Maria roared onto Puerto Rico with 155 mph winds Wednesday morning, striking the area with life-threatening winds that could last for 12 to 24 hours, forecasters said. More prayers.

Hurricane Jose is still a potential threat to Northeast refiners as well. Flooding and the fact that many of these re-entry workers are helping out along the Gulfs Coast could mean significant challenges ahead.

The API Weekly: Crude +1.443, Cushing +0.422, Gasoline -5.063, Distillate -6.131. Very bullish numbers. If the Energy Information Administration confirms, oil could finally break out.

OPEC and non-OPEC are meeting on Friday and there is buzz about an extension of the current production cuts. Stay Tuned. OPEC has had success already as excess inventories in developed economies, measured against their five-year average, have declined by about 74 million barrels, or 28 percent, since the start of the year, according to the International Energy Agency, which advises most major economies on energy policy.

Natural gas looks like a lock for this winter. Andy Weissman writes that natural gas futures soared higher on Monday as favorable weather shifts helped bulls overcome technical resistance at $3.09 and $3.12/MMBtu, opening the door to significant further gains. Despite a slight pullback on Tuesday and potential immediate term weakness, the medium term picture for natural gas has strengthened on a colder October weather forecast augmenting seasonal gains in weather driven demand, as well as a likely increase in LNG exports over the next several weeks. He expects lower end-of-season natural gas storage inventories this November, potentially the lowest since 2014, to increase both NYMEX winter contract risk premiums and market sensitivity to any early-season cold in October or November. A late-season heat wave may enliven electricity futures temporarily, but prices will increasingly track natural gas prices as power demand fades in autumn. 


About the Author

Phil Flynn is a senior energy analyst at The PRICE Futures Group and a Fox Business Network contributor. Phil is one of the world's leading market analysts, providing individual investors, professional traders, and institutions with up-to-the-minute investment and risk management insight into global petroleum, gasoline, and energy markets.