Quote of the Day.
The best thing about the future is it comes one day at a time.
The oil complex is in a battle between the perception traders, who view each piece of bad economic news as a sign that more simulative measures are coming from all of the main central banks around the world, and the reality traders, who look at the fact that every major segment of the global economy is slowing and even with more stimulus global demand for oil and most other major commodities will continue to decline. Manufacturing PMI data in just about every major country in the world is now below the expansion threshold of 50 and is thus in the contraction mode. This is an energy sensitive indicator and is suggestive of a further slowing in energy consumption as the manufacturing sector... globally... continues to slow.
Had it not been for Hurricane Isaac oil prices would have most likely declined strongly over the last week or so as prices of both WTI and Brent are trading near the upper end of their trading range and at the moment the current fundamentals do not support prices at this level. The fact that a significant amount of oil production has been shut-in along with about 6% of refining capacity has resulted in inventories in the US moving into a deficit situation versus last year after showing a surplus of crude oil versus last year for most of this year. Thus it is a temporary support and one that is not likely to be long lasting as a significant amount of production has already been restarted and refineries are also in restart mode. There has been no reported major infrastructure damage form the storm as all of the shut-ins had been preemptive ahead of the storm.
On the storm front there are no new tropical storms that could impact the oil and Nat Gas region in the US Gulf at the moment. The energy industry is currently in restart mode with about 700,000 bpd or 51.5% of GOM crude oil production still shut in and 1,309 mmcf/d or 29% of GOM Nat Gas production still shut as of yesterday afternoon. This is an ongoing process and I am still expecting producing operations to return to normal within the next week. Refineries are restarting and logistics are also close to normal with LOOP back to normal operations as of September 1. The big impact from the storm will begin to show up in this week's inventory reports and to a lesser extent in next week's reports.