Get 40% Off
🤯 Perficient is up a mind-blowing 53%. Our ProPicks AI saw the buying opportunity in March.Read full update

The Energy Report: Heartbreaking

Published 08/27/2021, 10:37 AM
Updated 07/09/2023, 06:31 AM

Today, like many Americans, I feel anger, sorrow, pain over the deaths of 13 American servicemen as well as many innocent men, women and children of Afghanistan that were killed or injured in the bomb blast yesterday. Right now, it would be so easy to lash out and assign blame, but today is not that day. Today should be a day of prayer. Prayer for the families of those who lost their lives and prayers of protection for those that are still in harm’s way. Please pray that we can get the rest of the Americans and the Afghanis that helped us out of there safely with no more loss of life.

We should also pray a prayer of protection from what could be a devastating hurricane that could be on the same track as hurricane Katrina. Tropical storm Ida has the potential to become a major hurricane, potentially a category 3. Oil platforms are already shutting down. Reports are stating that BP (NYSE:BP) evacuated four oil production platforms and shut down U.S. Gulf of Mexico production. The storm will also slow down petroleum and natural gas exports and imports as well. Gulf of Mexico offshore wells account for 17% of U.S. crude oil production and 5% of dry natural gas production. Over 45% of total U.S. refining capacity is along the Gulf Coast.

For the crude oil market, there is still significant upside risk going into winter. The market, of course, is going to focus today on not only the storm but what comes out of the meeting at the Jackson Hole symposium. More Fed officials are calling for a taper, perhaps as early as October, which should give the dollar more strength. This could also cause a headwind for oil prices. Still, our expectations are that OPEC next week will pause their production increase because of the concerns about the delta variant of COVID-19 and because of that, we still believe the market is going to be under supplied going into the end of the year. Product demand right now for gasoline and diesel is exceptionally strong and that may be one of the reasons why the Fed believes they’re going to have to start to remove some of the extraordinary stimulus they’ve pumped into the system. Inflation fears are becoming real for the Fed and with more government spending coming, they may want to put on the brakes.

With hurricanes you never really know how they’re going to play out. Sometimes they do more damage to the supply side and sometimes they do more damage to the demand side, so we expect some volatility. If we do get a post hurricane sell off, use that opportunity to lock in your hedges going into winter. It may be your last best chance before this market takes off.

Alexander Stahel tweeted that, “Oil rigs in Venezuela went from 50 five years ago to ZERO in the country with the largest oil reserves globally. Zero oil exports today. Socialism & resource nationalism fail every single time & make the poor even poorer. Fight corruption, not free markets!” Well said.

The natural gas chickens came home, whatever that means. The underlying bullish fundamentals played out in epic fashion after the Energy Information’s Administration (EIA) released an almost disturbingly bullish report, raising fears about the adequacy of supplies going into winter. It did not help that the market is also coming to grips with more production getting shut down in the Gulf of Mexico. The EIA said that working gas in storage was 2,851 Bcf as of Friday, Aug. 20, 2021, according to EIA estimates. This represents a net increase of 29 Bcf from the previous week. Stocks were 563 Bcf less than last year at this time and 189 Bcf below the five-year average of 3,040 Bcf. At 2,851 Bcf, total working gas is within the five-year historical range.

3rd party Ad. Not an offer or recommendation by Investing.com. See disclosure here or remove ads .

Latest comments

fantastic article you have written
"The natural gas chickens came home, whatever that means"... you're the one who wrote it, why don't you know what it means?
Risk Disclosure: Trading in financial instruments and/or cryptocurrencies involves high risks including the risk of losing some, or all, of your investment amount, and may not be suitable for all investors. Prices of cryptocurrencies are extremely volatile and may be affected by external factors such as financial, regulatory or political events. Trading on margin increases the financial risks.
Before deciding to trade in financial instrument or cryptocurrencies you should be fully informed of the risks and costs associated with trading the financial markets, carefully consider your investment objectives, level of experience, and risk appetite, and seek professional advice where needed.
Fusion Media would like to remind you that the data contained in this website is not necessarily real-time nor accurate. The data and prices on the website are not necessarily provided by any market or exchange, but may be provided by market makers, and so prices may not be accurate and may differ from the actual price at any given market, meaning prices are indicative and not appropriate for trading purposes. Fusion Media and any provider of the data contained in this website will not accept liability for any loss or damage as a result of your trading, or your reliance on the information contained within this website.
It is prohibited to use, store, reproduce, display, modify, transmit or distribute the data contained in this website without the explicit prior written permission of Fusion Media and/or the data provider. All intellectual property rights are reserved by the providers and/or the exchange providing the data contained in this website.
Fusion Media may be compensated by the advertisers that appear on the website, based on your interaction with the advertisements or advertisers.
© 2007-2024 - Fusion Media Limited. All Rights Reserved.