Oil production and refinery operations are already coming back in the aftermath of Tropical Storm Barry. Yet it might not be just the passing of Tropical Storm Barry that could ease upward pressure on oil prices, but also the possibility that geopolitical storms with Iran may start to see the skies clear. Reuters reported Iranian President Hassan Rouhani said on Sunday, July 14th that Iran is ready to hold talks with the United States, under the condition of lifting sanctions and returning to the 2015 nuclear deal. "We have always believed in talks ... if they lift sanctions, end the imposed economic pressure and return to the deal, we are ready to hold talks with America today, right now and anywhere," Rouhani said in a televised speech. Also, it was reported that “Britain will facilitate the release of a seized Iranian tanker if Iran can provide guarantees the vessel would not breach European sanctions on oil shipments to Syria,” Britain's top diplomat said, as European nations called for new talks to ease tensions in the Persian Gulf. There has been talk of back-channel discussions between the U.S. and Iran to cool down the temperature and avoid a war.
Tropical Storm Barry could have been a lot worse. The storm did cause approximately 72.82 percent of the current oil production in the Gulf of Mexico to be shut-in, which equates to 1,376,265 barrels of oil per day, that according to the BSEE, should be the peak. Bloomberg reports that “Some producers in the Gulf of Mexico are preparing to, or have begun to, re-staff their offshore crude and natural gas platforms.” Exxon Mobil Corp (NYSE:XOM). said it was returning workers to its three platforms where the non-essential staff was evacuated, with “minimal production impact.” BHP Group expects to return workers to its two shut assets by Monday, while Enbridge Inc. plans to return the crew to an offshore natural gas platform. Their offshore and onshore facilities would have to inspected before they can restart.
Chevron Corp. (NYSE:CVX) said it already began restarting six crude oil platforms that it shut. The U.S. Gulf of Mexico accounts for 16% of total U.S. crude oil production and under 3% of natural gas production, according to the Energy Department. Royal Dutch Shell (LON:RDSa) Plc said it was still monitoring the situation and its assets in Auger, Salsa and Enchilada remain shut-in and production in the Mars Corridor curtailed, according to a statement Sunday on its website.
The impact on gas prices should be short-lived as lost imports and production was offset by weaker demand due to rain. U.S. gas demand should remain strong reflecting a kicking U.S. economy. AAA has gas prices at $2.792, up almost a dime from a month ago, and up almost 4 cents since the storm began. Of course, the increase in state taxes in some states like Illinois adds to the price.
Oil though is getting support from Chinese economic data that seems to suggest that despite posting the weakest pace in 27 years, retail sales and industrial production data seems to be suggesting that China’s economy may be stabilizing. China’s June industrial output climbed 6.3% from a year earlier, besting the 5.2% expectation by a full point. June fixed-asset investment in China increased by 5.8% from the same period last year, surpassing a 5.5% increase forecast by analysts. China also went on a shopping spree, year over year retail sales spiked, rising 9.8% vs. +8.3% expected. It is clear that the Chinese stimulus is beginning to kick in and it will only be a matter of time until energy demand follows.
U.S. oil production is strong but still showing signs of an impending production slowdown. On Friday, Baker Hughes reported that the U.S. oil rig count fell -4 to 784 last week and over the last four weeks was down -8.5% compared with the same period last year. While producers are doing more with fewer rigs, the continued spending cutbacks from producers will take its toll on oil output. Oil prices big picture are in a consolidation mode and will soon resume its uptrend.
Natural Gas is struggling even with all the heat. Andrew Weissman of EWB Analytics says that the “intense heat expected to arrive early this week and persist for up to ten days. U.S. demand for natural gas is likely to reach its highest level of the summer, putting renewed upward pressure on cash market prices. While natural gas futures are likely to post gains, in a market dominated by bears, the magnitude and duration of these gains remain to be seen. We expect a 5-10 cent increase. If resistance holds just above $2.50/MMBtu, though, a sell-off is possible late in the week. Widespread warmth over the western and central U.S. is expected to exert constructive price pressure on structurally tight power markets in California and Texas, as the US edges closer to the climatological heart of the cooling season.”