What is the world to gain if it gets oil from OPEC+ but loses it in the Gulf of Mexico? The International Energy Agency (IEA) pointed out the obvious, that the loss of production from Hurricane Ida and now more challenges from Hurricane Nicholas, are going to keep the global oil situation in a supply versus demand deficit. The IEA reports that it may be October before the market can attempt to replace the estimated 540,000 a barrel a day drop in global supplies that we had in August and is expected to continue even into September on the slow rebound in Gulf oil and gas production.
Progress on the Gulf of Mexico recovery is slow but there was some progress. The Bureau of Safety and Environmental Enforcement (BSEE) said about 794,000 barrels per day (bpd) of crude production and 1.15 billion cubic feet per day of gas were offline, while 47 production platforms continued evacuated. Progress shouldn’t speed too much because of Hurricane Nicholas. High winds and rains will slow the process more, adding to the deficit.
All Texas ports were closed yesterday with no ship traffic allowed to leave. That is a problem for Europe who desperately is waiting for LNG cargos from the United States to offset their shortage of supply. European gas prices rocketed 7% to a new all-time high as prices have surged 60% since the beginning of August. The wind farms are not cutting it as the wind fails to blow. Natural gas supply for Europe is well below what they need to be with winter around the corner. Just a preview of what the Biden Energy plans might look like here in the United States in the future. Good luck charging that electric car buddy. It will either be prohibitively expensive, or you won’t have the power to do it.
Gas prices at the pump are remaining stable to lower right now but that may change if they don’t get production back online. AAA says with the height of summer in the rearview mirror, motorists are seeing some relief at the pump, as the national gas price average dropped by a penny on the week to $3.17. However, the recovery from Hurricane Ida remains slow, with the latest U.S. data showing just under half of the U.S. offshore oil production in the Gulf still idle after companies shuttered production ahead of the storm.
Meanwhile, refinery utilization is down almost 10%, causing gasoline stock levels to fall by 7.2 million bbl to 220 million bbl, according to the Energy Information Administration (EIA). Stock levels are likely to remain tight until Ida affected refineries resume normal operations. While refineries are reporting progress towards restarting, the U.S. Department of Energy (DOE) said it would release an additional 1.5 million bbl of crude oil held at the U.S. Strategic Petroleum Reserve (SPR) to help ease tightened supplies brought by Hurricane Ida. This is the second such release, and the DOE said the SPR has now released a total of 3.3 million bbl of crude oil in response to the storm.
The constraint on stocks would typically lead to higher prices, but it has been offset by decreased demand going into the fall. In the week ahead, pump prices may be impacted by Tropical Storm Nicholas, which is expected to bring heavy rains and a storm surge to the Texas coast this week. If the tropical storm puts additional refineries offline, we are likely to see prices increase.
In both oil and natural gas there’s still significant upside risk in prices. Supplies could fall to critical levels as we head into winter. Let’s just hope and pray that our politicians learn from this man-made energy crisis that to succeed with the energy transition. It must be done in a more organized and thought out the direction with a real plan otherwise you’re just going to create a lot of pain not only for people but for the economy.
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