Outlook: As OPEC+ remains diligent and cautious about bringing production back to market, ongoing shut-ins from Gulf of Mexico oil and gas producers are assisting to pull down inventories of petroleum. Equities are well off earlier highs, tempering gains in energy so far today. The energy complex is higher today with WTI up near 54 cents, ULSD up 60 points, RBOB up 20 points, natural gas up 22 cents and Conway is up more than 2 cents.
Crude
- Ports in Houston, Galveston, Freeport and Texas City are preparing for Tropical Storm Nicholas, which is expected to make landfall in the next 48 hours. Nicholas is the 14th named storm of the Atlantic hurricane season and is expected to bring flooding rains to Houston and parts of Louisiana that are still recovering from Ida.
- As of yesterday, the Bureau of Safety and Environmental Enforcement estimated 49% of oil production, about 884,000 bpd, remained offline in the Gulf of Mexico.
- The Louisiana Offshore Oil Port (LOOP) is fully operational.
- The market is awaiting China’s import quotas for private refineries which are anticipated to come soon.
- Libya’s Es Sider port, the largest oil terminal in the country, is said to have been shut due to protesters.
- Iran and the IAEA have come to an agreement which will allow inspectors to replace damaged surveillance cameras and memory cards at atomic sites.
- OilX analysts saw globally the oil market was undersupplied by 2.1 million bpd in August, more than the deficit of 1.8 million bpd in July. In addition to robust demand, they point to weaker US supplies from Hurricane Ida, declines in mature oil fields in Angola and Nigeria and outages in Kazakhstan and Mexico.
- The Dec21/Dec22 WTI “red spread” is $5.05, up 34 cents on the day, an indicator of tightening supply. Backwardation has been increasing in recent weeks and the current spread is above the low of $3.48 on August 19 and below $7.39 on July 6.
- Goldman Sachs suggests oil prices are likely to rally next quarter amid stronger demand and diminishing supplies. I would agree that upside risk outweighs downside in the coming months.
- Bank of America suggests a colder than normal winter could push oil prices towards $100 early next year.
- As of 10:14 am CDT: November Brent is $0.43 higher to 73.35, the U.S. dollar index is 0.030 higher at 92.612 while the nearby e-mini S&P 500 futures contract is down 4.50 at 4453.75.
Diesel
- After dipping to a low of 1.8970 less than a month ago, nearby ULSD has staged a recovery to trade at 2.1567 currently. The 2.2100 price point is now clearly visible again as resistance which if closed above would open the door to 2018 highs above 2.4000.
Gasoline
- Refineries in the Gulf have been quicker to come back online than oil and gas production in the Gulf of Mexico, however some large issues remain. Three of nine refineries impacted by Hurricane Ida remain idled. Phillips 66’s 255,600 bpd Alliance refinery was the hardest hit and it could take months for that refinery to be back and operational. In fact, Bloomberg reports they are contemplating idling the refinery because repairs may be too costly, according to a source familiar with the operation.
Propane
- Propane should remain an eager participant in upside price moves across the complex. Conway propane's value as a percent to WTI's is 73%, well above the 5-year average near 48%.
Natural Gas
- Natural gas futures are rallying today with current trade in the nearby October contract up 22 cents to $5.1580. Natural gas held in storage sits at 2.923 tcf, down from the five year average of 3.186 tcf.
- As of yesterday, the Bureau of Safety and Environmental Enforcement estimates 54% of natural gas production in the Gulf of Mexico remained shut-in.
- High costs of natural gas should translate to higher electricity prices paid in the coming months, which suggests the Consumer Price Index will increase, which would diminish the validity of the Federal Reserve’s insistence that inflation is temporary, Bloomberg opines.
World Oil Supply and Demand estimates from OPEC’s September monthly report (in millions of bpd):
