The Energy Rally Is Based on More Than the Weather

October 6, 2020 08:25 AM
Tropical Storm Gamma and Hurricane Delta
Gasoline demand is improving and a general risk on feeling
ExxonMobil plans European layoffs
Energy Report

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The Phil Flynn Energy Report 

Delta and Gamma      

Delta and Gamma are going to create volatility in the energy markets. No, I’m not talking about the the risk variable of options or the relationship of the opportunity with another underlying variable but Tropical Storm Gamma and Hurricane Delta. Hurricane Delta isn’t neutral but on track to become a Category 3 hurricane. It will shut down a significant portion of Gulf of Mexico oil and gas production and create a threat to the U.S. refinery row and flooding in soaked Louisiana.

S&P Global Platts reported that BP is, "securing its offshore facilities and evacuating non-essential personnel" from its four offshore platforms. BP's platforms include Thunder Horse, Atlantis, Mad Dog, and Na Kika. Also, BHP has begun evacuating non-essential crews on October 5 at its operated Shenzi and Neptune platforms, company spokeswoman Judy Dane said. "We have plans in place to be fully evacuated and shut-in by Wednesday [October 7]," Dane told S&P Global Platts. Also, Occidental Petroleum said it is "carefully tracking" Delta, adding all its facilities in the U.S. Gulf have plans to prepare for weather-related events. "Those in the storm's potential path are implementing those procedures," Oxy said but wasn’t more specific.

Yet the rally in oil and gas isn’t just about the weather but signs that gasoline demand is improving and a general risk on feeling with the increased odds of an aid package and a healthy ISM Nonmanufacturing number in the U.S.

Oil is also getting support from strong Chinese’s imports even though some speculate that the Chinese buying spree may end. Reuters reported that September imports are estimated by Refinitiv Oil Research to be 11.71 million barrels per day (bpd), the fifth straight month that arrivals have exceeded 11 million bpd. If the official customs data, due October 13, is in line with the Refinitiv figures, it would mean that the last five months have been the strongest on record for China's crude imports, including the record high of 12.9 million bpd in June, according to Reuters.

MarketWatch reports that Norwegian oil-and-gas primary Equinor ASA said 4 oil fields in the North Sea had been shut down due to a strike. That brings the total number affected by the strike to 6, which, according to the Norwegian Oil and Gas Association, could see as much as 330,000 barrels of oil equivalent lost per day. That's equal to around 8% of Norway's oil and gas production.

The API report is out at 3:30 p.m. CT today. Another crude and gas draw could help the rally. While the storms in the Gulf of Mexico will confuse things, the trend in gasoline and distillates is lower. We think that even though volatility may come back in oil, the seasonal bottom is forming.

More layoffs in big oil and the lack of capital is assuring us higher prices in the future. Covid-19 demand destruction has caused energy companies to try to reinvent themselves to a world beyond oil. The problem is that world doesn’t exist. The massive cutbacks and this move towards renewables will send prices higher and put the global economy at risk. The Financial Times reported that ExxonMobil will cut up to 1,600 jobs in Europe as the significant oil struggles with the destruction to demand caused by the coronavirus pandemic. The biggest U.S. oil company by market capitalization on Monday said the virus had "increased the urgency" of reducing its costs and said the job losses would be made by the end of next year.

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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.