The Phil Flynn Energy Report
Picking Up the Pieces
In the aftermath of Hurricane Ida, the U.S. energy industry is still trying to assess the damage and get back online. The BSEE reported that, based on operator reports, it’s estimated that approximately 94.6% (1,721,809 barrels) of the current oil production and approximately 93.57% of the gas production in the Gulf of Mexico has been shut in.
Oil prices have fluctuated but are lower on concerns that refinery outages may last weeks, which could lead to a backlog of crude oil production if oil were to start coming back online today. On the other hand, it may end up going into storage if the refineries can’t run.
Gasoline futures spiked up then pulled back, but generally added only a couple of pennies by the end of the day. We may see gasoline futures start to run up once again if the reports from the refineries turn out to be negative. Gasoline exports should start hitting our shores in a couple of weeks, but it's still going to be difficult to know the outcome of the impact on gasoline prices until we get more information. I would assume in the next 24 hours we'll get a better idea of exactly where we're at and where we're potentially going.
The impact on the market has already been felt. Natural gas prices were hit hard— at one point, there were over 1 million people without power due to Hurricane Ida. The Colonial Pipeline was shut down and was scheduled to be restarted Monday night, but hasn’t. That's part of the progress we're still trying to make. The extent of damage to refineries is being discovered and it's difficult to bring refineries back online when there’s no power.
It's not only bringing refineries back online, transportation is also of concern; we have to get feedstock to the refiners, as well. Grain prices got hit hard, especially corn, because the Mississippi was shut down. That caused grains for exports to be blocked.
We're going to continue to see other ramifications from the storm. The movements of the markets will be based partially upon the perception of how quickly things can get back to normal.
On the plus side, Reuters reports that "Mexican state oil firm Petroleos Mexicanos (Pemex) said on Monday that it has resumed 421,000 barrels per day [bpd] in oil production and brought back online 125 wells following a deadly fire at an offshore platform on Aug. 22. The accident in the southern Gulf of Mexico at the offshore platform that is part of Pemex’s most productive oil field Ku-Maloob-Zaap, knocked out about 25% of Mexico’s total production.”
Javier Blas of Bloomberg tweeted, "Japan, the world's 4th-largest oil consumer, struggling under Delta. Demand was again weak in July, down 7.8% vs July 2019. Since May, Japanese consumption has been weaker than expected due to the impact of the new variant on the recovery.”
Argus Media gave this assessment:
Hurricane Ida left behind widespread power outages in Louisiana as officials today begin the painstaking process of assessing damage from the storm.
About 1 [million] households and businesses in the state were without power as of 6:30pm ET [Monday], while about 89,000 were in the dark in Mississippi, according to the website PowerOutage.US. Local power utility Entergy said that all [8] transmission lines serving the New Orleans area were knocked out of service by the hurricane, which has since been downgraded to a tropical storm. It may take days to assess the extent of the damage to the grid in New Orleans and weeks before power is fully restored.
More than 2 [million bpd] of refining capacity in Louisiana was shut after the storm brought 150mph (240km/h) winds and [9]-foot storm surge to areas near New Orleans, coastal Louisiana and stretches of the Mississippi River yesterday. The region is also home to key facilities for offshore oil and gas support work, as well as ports and docks that handle a wide range of other commodities.
Goldman Sachs said it is too early to identify the likely duration of the refinery disruptions.
"In the case of Hurricane Harvey, which was the high end of recent storm impacts (severe flooding, wind), downtime of several refiners lasted 4-6 weeks," the bank said in a note, referring to the storm that struck in 2017.
Most refinery operators with facilities in the storm's path said they shut down ahead of its arrival, but the extent of damage and potential re-start times may not be known for several days.
ExxonMobil shut down its 500,000 [bpd] refinery and petrochemical complex in Baton Rouge, Louisiana, today in the face of the widespread power outages and supply chain disruptions.
Marathon Petroleum's 565,000 [bpd] Garyville, Louisiana, refinery is "currently assessing a timeline for safely resuming operations" after shutting down ahead of Hurricane Ida.
[U.S.] offshore operators evacuated staff and shut nearly all oil production in the Gulf of Mexico before the hurricane. Around 95pc, or 1.7 [million bpd], of offshore crude output and 94pc, or 2.1 Bcf/d, of natural gas production were shut in as of 12:30pm ET [Monday], the [U.S.] Bureau of Safety and Environmental Enforcement said. This is a slight improvement over the percentages reported on 29 August...
...Deliveries at the Louisiana Offshore Oil Port (LOOP) have also been suspended because of the storm. LOOP, about 20 miles (32km) off the coast from Grand Isle, Louisiana, is the only [U.S.] port capable of fully loading Very Large Crude Carriers (VLCCs).
Ports in Louisiana and Mississippi remained closed this morning as the remnants of Hurricane Ida moved inland.
New Orleans, Baton Rouge, Plaquemines, South Louisiana, St Bernard and the Venice Port Complex in Louisiana all remained closed to traffic. The Mississippi ports of Biloxi, Gulfport, Pascagoula and Port Bienville, also remain closed according to the [U.S.] Coast Guard.
When it comes to oil inventories, the next couple of weeks are going to be very messed up. We're going to take things 1 day at a time until we get through the total damage assessment.
As far as OPEC+ goes, more and more it looks like they're going to follow through with their 400,000 bpd production increase. If there are any surprises, it would be if the cartel decides to pause the increase to get a better handle on the impact on demand from Covid-19.
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