There are storm clouds on the horizon. Not only are we seeing oil production get shut down from Hurricane Michael, you have a warning from the International Monetary Fund (IMF) about trade wars potentially slowing growth and a warning from the International Energy Agency (IEA) that high oil prices could be doing damage to the global economy and that OPEC and other major oil producers need to hurry and do something about it. Yet, signs that supply from Iran is falling faster than previously thought, along with major refinery outages that could crimp supplies in the Northeast is giving bulls the edge in early trade. Behind all the news, the big picture oil super-cycle is in play and the trade is starting to wake up to the fact that the underinvestment in the sector is now creating the tightest petroleum market conditions that we have had in over a decade.
Hurricane Michael is now a category 1 hurricane but is expected to strengthen to a Category 3 storm by the time it hits land on Wednesday. Already the storm is shutting in production. The Bureau of Safety and Environmental Enforcement (BSEE), as of 11:30 a.m. yesterday, reported that there had been an evacuation of 10 production platforms, 1.46 percent of the 687 manned platforms in the Gulf of Mexico. They estimated that approximately 19.07 percent of the current oil production in the Gulf of Mexico has been shut-in. It is also estimated that approximately 11.09 percent of the natural gas production in the Gulf of Mexico has been shut-in. The patch of the storm into the Panhandle is the first in that area since 2005 and it looks like major refineries will be spared from the brunt of the storm. Still, it should be remembered that the Gulf of Mexico is home to 17 percent of daily U.S. crude oil output and 5 percent of daily natural gas output, according to the U.S. Energy Information Administration. We will see more platforms and production shut in today.
The USA Today reports that on its current track, Michael will move across the eastern Gulf of Mexico throughout Tuesday and then move inland over the Panhandle or Big Bend area of Florida on Wednesday, according to the hurricane center. From there, Michael would move northeastward across the southeastern states on Wednesday night and Thursday. The path is out of the way of major refineries but with flooding fears and transportation issues, products should be supported.
