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The Energy Report: Recovery Mode

Published 07/09/2024, 09:25 AM

The Port of Galveston and the Port of Houston are in recovery mode as well as refiners where the biggest damage from Hurricane Beryl seems to be the lack of power. There are 2.3 million still without power in Texas post Hurricane Beryl and that is one of the reasons the recovery from the storm is taking time.

Corpus Christi, the largest crude oil export port in the US, is in recovery mode. They reported that “In response to the impacts of Hurricane Beryl, the Port of Corpus Christi Authority has now fully transitioned to Post-Storm Recovery in accordance with the 2024 Hurricane Readiness Plan."

Port personnel are continuing to assess impacts; however, no significant impacts have been reported. Port facilities, including the Emergency Operations Center (EOC), Security Command Center and Harbormaster’s Office have maintained continuous uninterrupted operations. Port offices will open as scheduled tomorrow, July 9, for normal operations.

Power outages shut down Marathon's Galveston Bay refinery yesterday as well as tripping units at Valero’s Texas refinery. When the power comes back online they should be able to resume operations and we will be watching for updates. Hours ago, the Port of Galveston reported that Galveston Harbor and port operations remain closed as the port and federal agencies assess the impact of Beryl.

The U.S. Army Corps of Engineers expects to begin surveying federal portions of waterways on Tuesday. That port is a major exporter of liquefied natural gas and oil but at the same time it is also a spot where many cruise ships start their voyage.

The Port of Houston said that “after conducting preliminary assessments of our facilities, power, and systems, all Port Houston terminals will remain closed tomorrow (Tuesday, July 9, 2024). They will continue to assess and repair damage this afternoon and tomorrow and will send an update by 4 PM CT tomorrow if there are any further disruptions to operations for Wednesday. The key thing is whether the flooding has impacted shore production and how quickly they can get the power back on.

The futures market already is looking ahead past the storm. It will now start to focus on supply and demand, and we will get a snapshot of that today with the American Petroleum Institute (API) report that comes out at 3:30 pm Central Standard Time. That should be the biggest market mover that we could be impacted by and any comments from Fed Chairman Jerome Powell who speaks today in front of a Senate committee. Oil traders will be listening very carefully to get a sense on whether the recent signs that The US jobs market is starting in the private sector is starting to weaken and signs that inflation has slowed impact the value of the dollar and the price of oil.

The one thing that we do know is that tonight’s API report and tomorrow’s Energy Information Administration (EIA) Petroleum Status Report will be the last reports for a while that won’t be impacted by Hurricane Beryl. This is going to give us our best snapshot of current supply versus demand and give us an idea about expectations of supply and demand going forward.

And if air travel is any indication, it looks like we are going to really be taking off. Taking to the air! The 4th of July holiday saw over 3 million people go through TSA checkpoints breaking all-time records. And Lava Land there’s a one-man band that will toot its flute for you! Now the question is whether that record-breaking air travel demand will translate into gasoline demand. Gasoline demand while growing has been a bit disappointing. Perhaps the 4th of July travel weekend may rewrite the weak gasoline narrative that is holding back the market.

From a technical perspective, if you look at the crude oil daily chart, it could be on the precipice of a major breakout to the upside. While we haven’t broken out yet, the momentum and technical setup could be wildly bullish, and a breakout would confirm that the market is going to see a supply deficit later in the year. We think the market is flashing warning signs and while we may get a pullback from resistance, the overall fundamental suggests that you really need to be hedged because the market has a lot of room to move if we get an upside breakout.

Meanwhile, gas demand in the US has still been questionable but in Brazil, it seems to be rising. Bloomberg reported that Brazil’s state-controlled oil company is raising domestic gasoline prices for the first time in 11 months as crude prices have climbed and the value of the nation’s currency. Petroleo Brasileiro SA will increase gasoline prices for distributors by 7.1%, to 3.01 reais ($0.55) per liter, according to a statement Monday. The company also raised prices for liquefied petroleum gas used for cooking and heating. It left diesel prices unchanged.

China has been the beneficiary of imports of cheap Russian crude oil as world governments have to admit that the Russian price cap fantasy turned out to be a total failure. Saudi Arabia has lost some market share to Russia on exports to China but are trying to get it back. Reuters is reporting that Saudi crude oil exports to China will rebound in August to at least 44 million barrels after deep price cuts by state energy firm Saudi Aramco. August exports to China will rise for the first time in four months, from about 36 million barrels in July, the sources said. The rebound will help the biggest oil exporter regain its share in the largest import market.

Perhaps the biggest surprise in the aftermath of the hurricane with the fact that natural gas prices held up well. It’s amazing when you think that LNG exports were delayed, and production could have been impacted and massive power outages that would decrease demand so when the market holds up that well even in the face of those challenges, it makes you feel like the bottom is in. It’s probably a good time to put on some bullish strategies for natural gas because the market seems to know something.

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