Breaking News
Get Actionable Insights with InvestingPro+: Start 7 Day FREE Trial Register here
Investing Pro 0
Ad-Free Version. Upgrade your Investing.com experience. Save up to 40% More details

Hurricane Or Recession: Which Is A Bigger Issue For Oil Over The Next 60 Days?

By Investing.com (Barani Krishnan/Investing.com)CommoditiesJul 01, 2022 05:28AM ET
www.investing.com/analysis/hurricane-or-recession-which-is-a-bigger-issue-for-oil-over-the-next-60-days-200626560
Hurricane Or Recession: Which Is A Bigger Issue For Oil Over The Next 60 Days?
By Investing.com (Barani Krishnan/Investing.com)   |  Jul 01, 2022 05:28AM ET
Saved. See Saved Items.
This article has already been saved in your Saved Items
 

Oil bulls might still be grimacing while the bears rejoice over June’s extraordinary plunge that led to crude's first loss in a month since November. 

Moving on from that is the bigger story of what could transpire in the next 30 to 60 days: a powerful Atlantic hurricane season that could be devastating to energy infrastructure and supply on the US Gulf Coast of Mexico, and the start of a recession that could ultimately reduce demand for everything, including oil.

Crude Oil Daily
Crude Oil Daily

For investors in energy, it’s not really a case of choosing one over the other but having to live with both—and figuring out which ultimately might have a greater lasting impact on prices. 

First off the bat is the storm season, which officially began June 1 with predictions by meteorologists for an "above-normal" year. As of Thursday, a “Potential Tropical Cyclone Two” was coursing its way across the Caribbean Sea and expected to strengthen as it approaches Central America.

"Tropical cyclones can last for a week or more; therefore, there can be more than one cyclone at a time,” the World Meteorological Organization, based in Geneva, said.

The storm working its way through the Caribbean had maximum sustained winds of 40 mph as it moved west at 21 mph about 410 miles east of Bluefields, Nicaragua, the National Hurricane Center in Miami said.

The formation could become either Tropical Storm Bonnie or a hurricane both before and after crossing land, the center warned.

Two other potential hurricane systems are also being tracked, with one in the northern Gulf of Mexico having a 30% chance of development over the next two days and expected to impact Texas. An area in the central Atlantic Ocean has a 10% chance of development over the next five days as it moves to the west-northwest.

While hurricanes come and go each year, any storm in 2022 could have a rippling impact on energy infrastructure, supply, and prices due to the squeeze already on barrels from sanctions piled on Russia; the apparent inability of OPEC+ to produce what consuming countries want and US shale being slower than ever in returning to its pre-pandemic drilling glory.  

“You cannot afford to lose a single barrel this summer. That’s the reality,” said John Kilduff, founding partner of New York energy hedge fund Again Capital. Adding:

“When every one of these storms blow into the Gulf, no matter how big or small,  there will be shutdowns, production will close in and rigs will be evacuated.  Even refiners will go into a slowdown mode eventually to safeguard their plants. But then, their plants might get flooded, personnel can’t get in and they lose power from the grid and go offline. It’ll be the worst case scenario if any kind of major hurricane comes into the US Gulf Coast this year.”

Bloomberg columnist Julian Lee noted that record volumes of both oil and gas were being shipped out of terminals on the US Gulf coast, to buyers in Europe and Asia. A big storm, or a succession of storms as we saw in 2005 or 2008, would put those flows at risk, perhaps for several weeks.

“Powerful winds, high tides, and storm surges will put overseas shipments at risk, spreading the impact of any storm far beyond US shores,” Lee said.

“Exports of crude and refined products are running close to 10 million barrels a day.”

Kilduff concurred, saying US energy infrastructure was “more vulnerable than any time in history to storms”. 

“This is because of the global situation,” he added.

“In years past, a storm comes through but it doesn’t knock us off the pedestal. This year, any one of these storms could knock the global oil market off its block.”

Equally crippling to oil could be the evolving recession in the United States.

US gross domestic product likely contracted by an estimated 1% in the second quarter of 2022, the Atlanta Federal Reserve said on Thursday. It was the first official forecast of recession by a division of the central bank, after the 1.6% economic decline in the first quarter

Economists say the recession narrative could get uglier over the next 30 to 60 days as the Federal Reserve continues tightening the screws on US interest rates.

While officials at the central bank are racing to remove liquidity as quickly as possible from the financial system for the Fed’s rate hikes to have a maximum neutralizing impact on inflation—and the Biden administration gloats at having reduced the US budget deficit by over $1 trillion during its term—there is always the danger of leaving markets illiquid in a sudden turn of events.

Economists say the United States may be witnessing the beginnings of a real economic shakedown, only that it’s too numb to notice because of the miraculous resilience of its consumers insulated by two years of pandemic aid money; a housing market still running on that old stimulus energy and stock markets often coming back after a few days of sell-offs.

But US consumers won’t be superheroes forever and the slide into the economic abyss could come faster than thought, warn analysts.

Since the start of the year, equity prices have fallen by around 25%, bond prices have declined by more than 20%, and the cryptocurrency market has lost more than half of its value. 

That has involved the evaporation of around $15 trillion, which could cause consumers to cut back heavily on spending, said Desmond Lachman, resident fellow at the American Enterprise Institute and a former official at the International Monetary Fund. 

In oil markets especially, “the prospect of a recession has created more two-way price action in recent weeks, preventing any unsustainable surges in the price of crude [even] as China reopened” from COVID shutdowns, said Craig Erlam, analyst at online trading platform OANDA. 

Disclaimer: Barani Krishnan uses a range of views outside his own to bring diversity to his analysis of any market. For neutrality, he sometimes presents contrarian views and market variables. He does not hold a position in the commodities and securities he writes about.

 
Hurricane Or Recession: Which Is A Bigger Issue For Oil Over The Next 60 Days?
 

Related Articles

Hurricane Or Recession: Which Is A Bigger Issue For Oil Over The Next 60 Days?

Add a Comment

Comment Guidelines

We encourage you to use comments to engage with other users, share your perspective and ask questions of authors and each other. However, in order to maintain the high level of discourse we’ve all come to value and expect, please keep the following criteria in mind:  

  •            Enrich the conversation, don’t trash it.

  •           Stay focused and on track. Only post material that’s relevant to the topic being discussed. 

  •           Be respectful. Even negative opinions can be framed positively and diplomatically. Avoid profanity, slander or personal attacks directed at an author or another user. Racism, sexism and other forms of discrimination will not be tolerated.

  • Use standard writing style. Include punctuation and upper and lower cases. Comments that are written in all caps and contain excessive use of symbols will be removed.
  • NOTE: Spam and/or promotional messages and comments containing links will be removed. Phone numbers, email addresses, links to personal or business websites, Skype/Telegram/WhatsApp etc. addresses (including links to groups) will also be removed; self-promotional material or business-related solicitations or PR (ie, contact me for signals/advice etc.), and/or any other comment that contains personal contact specifcs or advertising will be removed as well. In addition, any of the above-mentioned violations may result in suspension of your account.
  • Doxxing. We do not allow any sharing of private or personal contact or other information about any individual or organization. This will result in immediate suspension of the commentor and his or her account.
  • Don’t monopolize the conversation. We appreciate passion and conviction, but we also strongly believe in giving everyone a chance to air their point of view. Therefore, in addition to civil interaction, we expect commenters to offer their opinions succinctly and thoughtfully, but not so repeatedly that others are annoyed or offended. If we receive complaints about individuals who take over a thread or forum, we reserve the right to ban them from the site, without recourse.
  • Only English comments will be allowed.

Perpetrators of spam or abuse will be deleted from the site and prohibited from future registration at Investing.com’s discretion.

Write your thoughts here
 
Are you sure you want to delete this chart?
 
Post
Post also to:
 
Replace the attached chart with a new chart ?
1000
Your ability to comment is currently suspended due to negative user reports. Your status will be reviewed by our moderators.
Please wait a minute before you try to comment again.
Thanks for your comment. Please note that all comments are pending until approved by our moderators. It may therefore take some time before it appears on our website.
Comments (6)
Raghu Raghavan
Aptosian Jul 05, 2022 1:09AM ET
Saved. See Saved Items.
This comment has already been saved in your Saved Items
https://oilprice.com/Energy/Energy-General/Is-Saudi-Arabia-Exaggerating-Its-Oil-Production-Potential.html
John Cerniuk
John Cerniuk Jul 01, 2022 4:38PM ET
Saved. See Saved Items.
This comment has already been saved in your Saved Items
hurricanes last days recessions can last years but good article
Barani Krishnan
Barani Krishnan Jul 01, 2022 4:38PM ET
Saved. See Saved Items.
This comment has already been saved in your Saved Items
Thanks and have a good one, John!
SunilKumar Dixit
SunilKumarDixit Jul 01, 2022 10:42AM ET
Saved. See Saved Items.
This comment has already been saved in your Saved Items
Thus far, 101 holds good. Breaking below this floor makes oil vulnerable for 91
Barani Krishnan
Barani Krishnan Jul 01, 2022 10:42AM ET
Saved. See Saved Items.
This comment has already been saved in your Saved Items
WTI got a tick up today and is hovering near $109. Let's see where we go after the 4th.
SunilKumar Dixit
SunilKumarDixit Jul 01, 2022 10:38AM ET
Saved. See Saved Items.
This comment has already been saved in your Saved Items
Recession obviously. Moreover, the trend keys 101 and 113 stand guard.
Barani Krishnan
Barani Krishnan Jul 01, 2022 10:38AM ET
Saved. See Saved Items.
This comment has already been saved in your Saved Items
That $12 range is proving to be something, Sunil.
Anjali Atul Kandhway
Anjali Atul Kandhway Jul 01, 2022 10:38AM ET
Saved. See Saved Items.
This comment has already been saved in your Saved Items
Monday Thusday price up or down kaha se kaha tak
SunilKumar Dixit
SunilKumarDixit Jul 01, 2022 10:38AM ET
Saved. See Saved Items.
This comment has already been saved in your Saved Items
Watch the mentioned trend key levels 101 - 113 and it's break out
Tom Scurlock
Tom Scurlock Jul 01, 2022 10:32AM ET
Saved. See Saved Items.
This comment has already been saved in your Saved Items
JOE BIDEN!!!!
Antonio Velardo
Antonio Velardo Jul 01, 2022 7:56AM ET
Saved. See Saved Items.
This comment has already been saved in your Saved Items
Brilliant. Thanks for shedding some light on the way forward.
Barani Krishnan
Barani Krishnan Jul 01, 2022 7:56AM ET
Saved. See Saved Items.
This comment has already been saved in your Saved Items
You're most welcome, Antonio. Thanks for being a reader.
 
Are you sure you want to delete this chart?
 
Post
 
Replace the attached chart with a new chart ?
1000
Your ability to comment is currently suspended due to negative user reports. Your status will be reviewed by our moderators.
Please wait a minute before you try to comment again.
Add Chart to Comment
Confirm Block

Are you sure you want to block %USER_NAME%?

By doing so, you and %USER_NAME% will not be able to see any of each other's Investing.com's posts.

%USER_NAME% was successfully added to your Block List

Since you’ve just unblocked this person, you must wait 48 hours before renewing the block.

Report this comment

I feel that this comment is:

Comment flagged

Thank You!

Your report has been sent to our moderators for review
Continue with Google
or
Sign up with Email