Oil Prices Are on the Decline in the Aftermath of Hurricane Delta

10/13/2020 10:00 am EST


Phil Flynn

Senior Energy Analyst, The PRICE Futures Group

Oil prices are on the decline as reports of more oil from Libya offset the market's issues in the aftermath of Hurricane Delta, says, Phil Flynn of the PRICE Futures Group.

Reports that Libya's largest oil field is restarting production means that they could be producing an extra 300.000 barrels of oil a day in just a matter of weeks. Oil also is getting pressure from the end of the Norway oil workers’ strike. That will complicate OPEC plus Russia's plans to extend production cutbacks as the temptation for preserving market share could open the door to more OPEC cheating. Still, Iraq's oil minister Ihsan Abdul Jabbar is optimistic about oil prices, saying this week that he expects oil prices to be around $45 a barrel in early 2021. Still, Hurricane Delta caused a lot of problems, and we could see gasoline supply get squeezed.

The Associated Press said, "power outage topped out at 800,000 at the peak of the storm as it raged inland. By Sunday morning, there were over 450,000 customers still without power from Texas to Georgia, according to PowerOutage.us. At least 10,000 utility workers were sent out to start restoring power to residents, The Associated Press said. Reuters reported that Delta's fierce winds tore roofs off homes, cut electric power, and disrupted energy operations as far away as Port Arthur, Texas, 65 miles (105 km) west of Delta's landfall.

Reuters also reported, "Hurricane Delta shut power and toppled equipment at US Gulf Coast oil refineries and closed oil-export ports as its destructive winds and a storm surge reached far from its center. Other damage reports, "Total SA's $TOT 225,500 barrel-per-day (bpd) refinery lost power, Valero Energy Corp's (VLO) 335,000 bpd plant lost a cooling tower. Motiva Enterprises shut a small unit at its 607,000 bpd refinery amid the storm, people familiar with operations said. Vitol quickly launched efforts to restart the oil-processing plant, the people said. Total, Valero, and Motiva did not reply to requests for comment.

Royal Dutch Shell's (RDS.A) Convent, Geismar, and Norco, Louisiana, oil and chemical plants were operating normally, a spokesman said. Three other Louisiana refineries close to the storm's track were previously shut for maintenance work or damage by a more powerful hurricane six weeks ago. Citgo Petroleum and Phillips 66 (PSX) operate those plants.

Cheniere Energy Inc, (LNG) that operates a natural gas processing plant on the Texas-Louisiana border, evaluated facilities on Saturday. Its Sabine Pass liquefied natural gas (LNG) export plant remains online, and employees were safe, a spokeswoman said.

Oil and petrochemical ports from Beaumont, Texas, to Lake Charles, Louisiana, were shut to commercial vessels ahead of the storm and remained closed on Saturday. Houston and Galveston were open and operating normally, data from the US Coast Guard showed.

Yet already, the comeback is underway. Reuters reported that, "Chevron Corp (CVX) has begun to restaff evacuated oil and gas production facilities in the US Gulf of Mexico. The company said in a statement, as calm returned to an area struck by Hurricane Delta. Chevron's Empire and Fourchon terminals and related pipeline systems remained shut on Sunday, the company said.

Natural gas is rallying on the cold weather forecast and hopes that the storm's damage will not impact LNG exports for long. Andrew Weissman of EBW Analytics reported that the export terminal in Sabine Pass is in good shape and wasn't affected by the storm. Oil tankers are going through the channel now, and two LNG tankers are close by. It sounds like it will be back to 4 Bcf/d quickly.

In Cameron, there is power near the terminal, so the main transmission lines must be working. While I can't tell for 100% sure from the Entergy outage maps, it seems likely that they never lost power, or if they lost control briefly, it quickly came back on.

The dredger that's been dredging the Calcasieux Shipping Channel was docked north of the channel until 2-3 hours ago, but is now going down the drain at a reasonably rapid clip for a dredger. Its already covered about 60% of the distance from the terminal to the Gulf. There is also an LNG tanker (Wilpride [NO] close by. I guess that it if it hasn't done so already, it will start ramping up production tomorrow and get to at least 2/3rd capacity sometime this week. With Cove Point also expected to return from maintenance in the next few days, this will result in a considerable surge in LNG feedgas flows—quite possibly >4 Bcf/d.

At the same time, production is down even further. About 1.6 Bcf/d of this is shut-in production in the Gulf. Even when this returns, we're likely to be down substantially from even a couple of weeks ago. Finally, all this is in a context where starting this coming Friday, space heating demand is likely to jump sharply. When this occurs, total injections nationally could fall to as little as 1-2 Bcf/d. As a practical matter, the injection season will be nearly over by next week.

Learn more about Phil Flynn by visiting Price Futures Group.

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