|
GOM facilities shut-in as Laura looms; temporary price spike likely
Steve Sutherlin Petroleum News
As Petroleum News went to press Aug. 26, category 4 Hurricane Laura was bearing down on the north coast of the Gulf of Mexico.
The National Hurricane Center warned that an “unsurvivable storm surge with large and destructive waves will cause catastrophic damage from Sea Rim State Park, Texas, to Intracoastal City, Louisiana, including Calcasieu and Sabine Lakes.”
“This surge could penetrate up to 40 miles inland from the immediate coastline, and flood waters will not fully recede for several days after the storm,” the NHC said.
The storm will make landfall in an area that accounts for more than 45% of all U.S. petroleum refining capacity and 17% of oil production, according to the Energy Information Administration.
Flash floods and winds could inflict as much as $25 billion in damage, according to Enki Research.
As evening approached, more than 84% of Gulf oil production and an estimated 61% of natural gas production had been shut down, the federal Bureau of Safety and Environmental Enforcement said.
The storm also threatens much of the nation’s exports of shale gas.
“After the storms have passed, facilities will be inspected,” the BSEE said. “Once all standard checks have been completed, production from undamaged facilities will be brought back online immediately.”
Normally, a destructive storm in the Gulf is bullish for oil prices.
Brent was down but still above $45, while West Texas Intermediate crude was trading up by a nickel to $43.44 a barrel as the storm approached. On Aug. 25, WTI, Brent and Alaska North Crude closed with gains, attributed to a surprise crude oil inventory draw of 4.7 million barrels for the week to Aug. 21. ANS rose 27 cents to $44.23.
With Hurricane Laura, price increases at the pump may be moderated by bloated stocks of gasoline, despite refinery closures.
Petrochemical prices may also hold steady, as an oversupply has suppressed prices after several new facilities came online in recent years, so companies would benefit from a drop in inventories, said Carlo Barrasa, an IHS Markit analyst.
Ultimately the hurricane effect will be temporary, and the prices will once again be subject to the strength of recovery in oil demand as the market recovers from COVID-19 induced lows.
Zooming to a ceiling Demand is recovering.
World oil demand has grown at a record pace - by 13 million barrels per day in the last four months - since the collapse in April, IHS Markit said in an analysis released Aug. 25. However, the pace of growth is expected to taper off with global crude demand plateauing just below pre-pandemic levels.
Global crude demand surged from May to July, currently at 89% of prior year levels - compared to being at 78% in April.
But IHS Markit expects demand growth to wane and plateau at 92-95 million barrels per day (roughly 92% to 95% of prior year levels) through the first quarter of 2021.
The reason demand will hit the wall is that travel, especially air travel and commuting to work, will remain subdued until COVID-19 is contained and vaccines are widely available.
The number of air flights globally is about 30% below February levels (compared to 78% below in April), IHS Markit said. Actual jet fuel consumption is still 50% off prior year levels since long-distance flights have not recovered to the extent of shorter ones.
U.S. retail gasoline sales improved rapidly from May to early July after falling to 50% of prior year levels in April, IHS Markit said. “But sales have hovered at 17-18% below earlier year levels since.”
However, the expected plateau of global crude demand doesn’t mean a return to the supply overhang that cratered prices back in April.
“OPEC+ members have rediscovered production restraint since then and U.S. output is expected to be lower as well,” Jim Burkhard, vice president and head of oil markets, IHS Markit said. “That means that markets can continue to rebalance, even if a full return to pre-COVID demand levels is put off for the time being.”
- STEVE SUTHERLIN
| 