The Phil Flynn Energy Report
The Hard Road Back
The U.S. oil and gas industry is the envy of the world: in the past, it’s been able to bring back oil and gas production quickly, even in the aftermaths of some of the most catastrophic storms. We've almost come to expect that oil and gas production, especially in the Gulf of Mexico, will come on quite quickly after hurricanes. Yet, it appears that the damage caused by Hurricane Ida is presenting greater challenges than any Gulf storm we've seen, perhaps since Harvey or Katrina.
One of the biggest reasons for the struggle is because of the damage Ida's done to Port Fourchon, Louisiana, a major staging area for operations in the Gulf of Mexico, and new reports of damage to a key oil platform.
The BSEE reported that oil and gas production took a step backward and reported yesterday that approximately 93.69% of the current oil production in the Gulf of Mexico has been shut in. They also estimate that approximately 94.47% of the gas production in the Gulf of Mexico has been shut in. It's coming back more slowly and it’s a key reason for rising gas and products.
There’s also a disturbing report from Shell stating its WD-143 facility in the Gulf of Mexico has been damaged, which was shared by Bloomberg’s Javier Blas via Twitter. This is a big deal because it creates a bottleneck for the major Mars, Hersa, and Medusa pipeline systems that could impact as much as 300,000 barrels of oil flows per day (bpd). It also means that the incredible comebacks the U.S. energy and gas industry is used to may take a lot longer. This could be just the beginning as we're starting to hear concerns about more damage to Gulf of Mexico infrastructure.
The Louisiana Offshore Oil Port (LOOP) still is shut in and has suspended deliveries. Argus Media reports:
"Facility assessments and repairs are underway," LOOP said [in] a notice. LOOP is working directly with shippers to minimize storm related impacts. The company did not provide details of the repairs....
...LOOP, about 20 miles (32km) off the coast from Grand Isle, Louisiana, is the only US port capable of fully loading very large crude carriers (VLCCs). LOOP can export WTI and similar grades but is primarily known as the main export hub for offshore-produced Mars.
LOOP accounted for about 6pc of the 3mn b/d of US crude exports from January-June, according to US Census monthly trade data.
LOOP also operates oil storage facilities in Clovelly, Louisiana, and the Locap pipeline that connects Clovelly to the oil hub at St James, Louisiana.
President Biden gave a speech in which he promised he’d do everything in his power to help the U.S. energy and gas industry recover. He offered oil from the strategic petroleum reserve and at least 1 company— Exxon Mobil Corp.— has already taken him up on it.
So, hopes for a quick recovery in the Gulf of Mexico are being dashed. This is going to be a long slog that will have an impact on prices, just another reason to be prepared for upside risk in oil, gasoline, and diesel.
The Biden administration's climate agenda push encountered some turbulence when China said that they want to become more green. The United States is going to have to acquiesce to their viewpoints on Taiwan, trade, and other issues, including energy. John Kerry was notably disappointed when the Chinese government told him that they couldn't separate climate goals with the bigger overall political agenda.
Zero Hedge reports the following:
Despite the [U.S.] long wanting “climate diplomacy” to remain a separate issue apart from its wider disputes with China, such as on trade and human rights, Chinese Foreign Minister Wang Yi is now warning deteriorating ties threaten joint efforts to tackle global warming and climate change.
Wang informed Biden's [U.S.] climate envoy John Kerry during the latter's visit to the Chinese city of Tianjin on Thursday that "climate cooperation cannot be separated from the wider environment" of [U.S.]-China relations.
It's widely perceived that if one side or the other links climate with the broader tensions besetting [U.S.]-China relations, it would greatly slow any substantive climate action.
In other words: if you want China to do their part in saving the planet, then you're going to have to give in on some political issues. Let's just hope and pray that the Biden administration doesn't.
Perceived weakness from the Biden administration is causing a whole host of issues, making the global oil trade more dynamic. Of course, Iran is a number 1 issue: the nation is telling the world that they’re going to raise production no matter what the Biden administration plans to do about it and claims that the sanctions are unfair. They also realize that they can probably get away with it because Joe Biden is viewed as weak— that perceived weakness is also allowing North Korea to restart their nuclear facilities, which will certainly be a major potential risk to global peace.
Natural gas production being offline is also causing a very bullish situation. We have panic buying in Europe. Russia has been withholding supplies because they’re concerned they won't have enough for themselves.
The European markets are going through the roof in other commodities and it looks like we're seeing some weakness in the U.S. Dollar. There’s some strength in aluminum and cocoa. We see strengthening in the Euro currency and, overall, it looks like commodities as a whole are going to start heating up here very quickly.
Grains may be a laggard right now because we're into harvest, but once people start to realize that the harvest isn't going to be as big as they might want, that should also turn around fairly quickly. I think grains should be bought on breaks or put on option strategies. We believe the commodity markets are generally going to be pretty strong.
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