Oil's Risk-On Rally

October 5, 2020 07:55 AM
We may be at a seasonal bottom
Both parties are talking about stimulus
Tropical storms threaten production
The Energy Report

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The Phil Flynn Energy Report 

On the mend

The oil market is on the mend and may have finally found its seasonal bottom. Stimulus hopes, a healing President Trump, and storm fears are giving oil a risk-on rally.

President Trump is signaling that he wants to get something done on Covid-19 relief, and both parties have a lot to lose if it doesn't happen. Reports that President Trump may be released from the hospital is easing fears of what might have happened if the President became severely ill. Now both parties are talking about stimulus, raising the odds that a deal will get done. Oil is also getting a boost from Mother Nature, and more tropical storm activity is threatening to shut down the Gulf Of Mexico oil production.

Bloomberg News reports tropical Storm Gamma is sliding southwest along the coast of Mexico’s Yucatan Peninsula bringing flooding rains and potential for mudslides across the region that a second system gathering strength south of Jamaica may threaten Gulf energy production and Louisiana as a Category 2 hurricane later this week even as Tropical Storm Gamma skirts the northern coast of Mexico’s Yucatan Peninsula.

According to Bloomberg, a second system gathering strength south of Jamaica may threaten Gulf energy production and Louisiana as a Category 2 hurricane later this week, even as Tropical Storm Gamma skirts the northern coast of Mexico’s Yucatan Peninsula. The storm, which will be named Delta as it strengthens, could pose a threat to offshore oil and natural gas production in the Gulf of Mexico and perhaps could end up striking Louisiana if its track holds, according to Jim Rouiller, lead meteorologist with the Energy Weather Group. It was south of Jamaica late Sunday, where it has sparked storm warnings on the Cayman Islands and a hurricane watch in Cuba, the U.S. National Hurricane Center said. 

“This storm could explode over the Gulf and present a growing, perhaps serious, late-season threat to Gulf energy production,” Rouiller said. “On-shore refineries to shipping along with rigs and platforms across the upper Gulf region from Louisiana to Florida need to watch this one.”

U.S. oil producers are trying to come back. The Baker Hughes rig count showed that active U.S. oil rigs rose by 6 last week to 189 and have now risen  by17 from their cyclical low of 172 in mid-Aug, as oil producers respond to the earlier rise in prices from their lows.


Oil is also getting support from UAE production cuts. Argus Media reported that, "The UAE cut its Sep crude oil output by 214,000 b/d to an average of 2.48mn b/d, having over-produced against its August Opec+ commitments.” Yet S&P Global Platts reports that Iraq’s oil exports went up 1.3% higher in Sept amid higher Kurdish output.

Andrew Weissman of EBW Analytics said that, “Natural gas futures were hammered last week due to bearish shifts in the weather forecast for October, maintenance at Cove Point and Sabine Pass, and continued uncertainty regarding restart of Cameroon—which pushed prices at Henry Hub down to $1.335/MMBtu on Friday. With the weekend forecast shifting milder again and demand near its low point for the fall this week, downward pressure on gas may not be over yet. The arrival of a liquified natural gas tanker at Cameroon on Sunday, however, could lay the groundwork for a rebound once production ramps up.”

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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.