Phil Flynn is writer of The Energy Report, a daily market commentary discussing oil, the Middle East, American government, economics, and their effects on the world's energies markets, as well as other commodity markets. Contact Mr. Flynn at (888) 264-5665
The Energy Industry has not even had a chance to fully recover from Hurricane Laura and now once again is under attack by the weather. Oil was a little risk on Covid 19 vaccine hopes and a flurry of stock deals but faded as what will become Hurricane Sally will take its toll on demand and further disrupt oil operations in the Gulf of Mexico.
The National Hurricane Center (NHC) says that “ Sally’s slow motion poses a significant risk of flash flooding over southeastern Louisiana, southern Mississippi, southern Alabama, and the Florida Panhandle through Wednesday morning. They forecast 6-12″ of rain, with isolated areas up to 20″. That will impact production and refining. Slow moving storm can damage offshore infrastructure and flooding can sink pipelines and takeout refineries.
Yet it is not just Tropical Storm Sally that is raising concerns. The National Hurricane Center is currently tracking 8 systems in the Atlantic 4 of which are expected to become a tropical storm. Tropical storm Paulette Is not a threat to the Gulf nor is Tropical Storm Rene but Tropical Storm Teddy and what is being called Tropical depression 21 could be a problem well into next week. While at some point these storms could be bullish for oil and products the market is acting as if the impact will be more bearish for price at least initially.
In the meantime, BP is writing an epitaph for the global oil market. Bloomberg News reports that BP Plc said the relentless growth of oil demand is over, becoming the first super major to call the end of an era many thought would last another decade or more. Oil consumption may never return to levels seen before the coronavirus crisis took hold, BP said in a report on Monday. Even its most bullish scenario sees demand no better than “broadly flat” for the next two decades as the energy transition shifts the world away from fossil fuels.
BP is making a profound break from orthodoxy. From the bosses of corporate energy giants to ministers from OPEC states, senior figures from the industry have insisted that oil consumption will see decades of growth. Time and again, they have described it as the only commodity that can satisfy the demands of an increasing global population and expanding middle class.”
Yet I disagree with BP doom and gloom prediction. This new mantra of ‘peak demand” is as flawed as the theory of “Peak oil” was a decade ago. BP fails to account for the power of the markets and the way that low prices for oil will cause demand and innovation to use oil more cleanly and economically. They fail to account for the fact that many alternative fuels will require traditional fuels to create the infrastructure.
Natural Gas prices are also at risk from the storms. Not only will the storm hurt demand is will further back up LNG exports. EWB analytics says that despite restart of Sabine Pass and a subsequent rapid rise in LNG feedgas flows, the October and November natural gas contracts sold off sharply last week, due to very weak cash market demand, plummeting cash market prices and high storage levels. With Cameron still offline and weather-driven demand falling to seasonal lows, the October gas contract could continue to come under downward pressure this week. Further increases in Sabine Pass feedgas flows over the weekend, though, could limit the downside risk. Like natural gas, front-month crude fell significantly last week. These losses were triggered in part by a steep sell-off in the equities market early in the week. A rebound in the dollar and growing concerns regarding the strength of global demand also played a role.
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