The Phil Flynn Energy Report
The strongest hurricane to ever hit Louisiana has done some major damage, causing massive power outages and refinery shutdowns. The storm hit 95% of crude oil production in the Gulf of Mexico and shut down over 95% of natural gas production. At the opening we saw gasoline prices spike as much as $0.10 higher a gallon, but they’ve fallen back to only 3 cents per gallon higher. The market is trying to determine the extent of the damage to the refineries.
The Colonial Pipeline was shut down, numbers 1 and 2. There’s a lot of concern that there could be pipelines under the Gulf of Mexico that are buried in silt because of the strength of the storm. At this point, the market seems rather optimistic that the damage isn't going to be that bad, but it may take hours or days before we know for sure.
The biggest issue right now seems to be with gasoline and diesel fuel. With these refineries being shut down along with the Colonial Pipeline, the supplies from these sources could be delayed along their route to different parts of the country. We may have to rely on imports of gasoline and diesel in the coming weeks, but it could be weeks before that gas hits our shores.
Retail gasoline prices have seen a slight increase thus far, but it isn’t as bad as it could’ve been. It’s also not as bad as it's going to get: I expect that we'll find some more damage to the refineries that could be shut down for weeks. That means we could see these gasoline prices start to edge back up. It's going to be touch-and-go here. I will try to keep you updated.
The other big drama for the crude oil market is this week’s OPEC+ meeting. It looks like the group will continue along their path of increasing production by 400,000 barrels per day (bpd) beginning in September. That’s the latest from 3 OPEC+ sources. Some waited to drop some hints regarding some talk from Kuwait that the production increase could be delayed. Right now there’s no evidence that other members of the group want to go along with that. On top of that, it could be a tough sell— especially in the aftermath of the storm.
LNG prices in Europe hit all-time highs upon news of the storm. Natural gas prices here may get hit by power outages.
Right now I think it's going to be touch-and-go with oil, natural gas, and gasoline. Our expectation is that these products will stay strong right now.
There’s talk that the Biden administration is going to release some oil from the strategic petroleum reserve, which won’t help with the refineries that are shut down offshore in the Gulf of Mexico. There's still a lot of concern about how quickly we can get things back online. Usually after a storm like this, the Gulf of Mexico platforms come on pretty quickly. Drilling rigs start to come back as well. That's the market's assumption right now and we’ll go with that assumption until we hear any differently.
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