Fox Weather is reporting that tropical storm Idalia is forecast to become a major hurricane before it reaches the Gulf Coast of Florida, blasting millions in the state with life-threatening storm surge and dangerous hurricane-force winds as early as Tuesday, according to the National Hurricane Center (NHC), states Phil Flynn of PRICE Futures Group.

For the crude oil market, while it may disrupt some operations in the Gulf of Mexico, the track so far looks like it will be more of a threat to demand than it will be to supply. Of course, the Labor Day weekend is remembered for many massive storms such as Kartina among others. While there could be some flooding concerns, products like gasoline and diesel are reacting negatively to the storm threat thus far. Fox Weather seems to be suggesting that the storm could work its way up the East Coast after crossing Florida which could have a big impact on demand destruction with low risk to oil platforms and refineries. Still, we will watch in case the track of this storm wavers! Prayers for those in its path. 

That could offset the growing pressure on US oil and product supply that more than likely will see another big drop across the board. Cushing, Oklahoma, the CME Group delivery point, has been draining at a historically quick pace and with signs that US shale oil production peaking could draw more in the coming weeks. Earlier this month John Kemp at Reuters reported that “US crude oil production was essentially flat in May compared with April—a sign lower prices and a slowdown in drilling activity are finally causing output to peak and turn down. Crude and condensate production for the Lower 48 states excluding federal waters in the Gulf of Mexico rose by just 19,000 barrels per day compared with a month earlier. Production was still up by more than one million barrels per day (+9%) compared with the same month a year earlier (“Petroleum supply monthly”, US Energy Information Administration, July 31).

One way to pump up your stock market is to force banks to buy your stocks. China is ordering their banks to buy stocks to support the market after the reopening of trading on Evergrande stock and it’s working so far. China equities advanced even after MarketWatch reported that “China Evergrande shares tumbled sharply Monday after resuming trading on the Hong Kong Exchange after more than a year. Shares fell as much as 87% to 0.220 Hong Kong dollars (three US cents) after one of the world’s most indebted developers fulfilled listing obligations set by the Hong Kong Exchange, which includes publishing its financial reports. The slide is the worst drop the stock has experienced since its listing in Hong Kong in late 2009.

The Biden administration seems to be reaching out to everybody in a desperate attempt to lower oil prices. There are reports overnight that Iran is saying that the release of frozen funds by the Biden administration could be viewed as a constructive step toward a nuclear discussion. While some see diplomacy others see the Biden administration as paying ransom to Iran which could encourage bad behavior in the future. The Biden administration paid cash allegedly to release US prisoners yet denies it was a quid pro quo. Others worry about paying money for hostages.

• Oil Analyst Anas Alhajji asks about “Iran’s Vanishing Floating Storage: Was it coordinated with President Biden’s SPR releases?”

• Annas says that “Iran’s floating storage has vanished, even without an apparent deal with the Biden Administration (Bullish).

• In case of a nuclear deal, there is no more Iranian oil to be added to the market (Bullish).

• Some estimates have exaggerated Iran’s oil production increases in 2023 (Bullish).

• The correlation between the decline in US SPR and Iran’s floating storage (Iran’s SPR) is striking.

Bloomberg reports, “A large stretch of the Iranian coast along the Persian Gulf has been polluted by an oil leak from an offshore pipeline, according to the country’s state-run Islamic Republic News Agency. “Sea tides are flowing up oil slicks to the shore,” Kioumars Jokar, head of the Ports and Maritime Organization in Genaveh, told IRNA. “The level of pollution is increasing, and measures must be taken as soon as possible to curb the spill.” The port city of Genaveh in Iran’s southern Bushehr province is near the spill area and houses a major oil storage facility. It’s connected through underwater pipelines to the Kharg Island in the Persian Gulf, where most of the country’s oil is loaded for exports.”

The Biden administration also is looking to lift sanctions on Venezuela. Last year Venezuelan crude oil production hit a 50-year low of around 700,000 barrels per day according to OIL Price dot com. They report, “Analysts: If the Biden Administration further eases the sanctions and allows other Western oil companies to operate in Venezuela, the South American country could ramp up its production by around 200,000 bpd and reach about 1 million bpd in crude output by 2025.”

Argus Media reported that Marathon Petroleum’s 596,000 b/d Garyville, Louisiana, refinery was running at reduced rates Sunday following a 25 August naphtha tank fire that shut some units in the plant. Operators at the refinery, one of the largest in the US, are evaluating the return to normal operations, according to the company as of 1 pm ET today. Marathon shut some units closest to the fire on Friday but did not close the plant entirely. A storage tank fire at a Marathon Petroleum (MPC) oil refinery that had triggered a temporary evacuation of area residents a day ago continued to smolder on Saturday, a spokesperson said. Two giant tanks of volatility naphtha caught fire early Friday at the Garyville, Louisiana, plant and sent plumes of black smoke over the area. Some fuel processing operations remained shut as firefighters contended with flare-ups and smoke, Marathon said.

Tropical storm Idalia could pause volatility in oil and products today. The potential short-term demand destruction and the fact that we’re going into shoulder season could overshadow the wildly bullish fundamentals that underpin the oil and products markets.  We continue to believe that there’s a significant upside risk for prices going into winter and try to take advantage of any short-term weakness to put on long-term hedges.

There are reports now that the United States is the biggest LNG exporter in the world. Liquefied natural gas is becoming the fuel of choice as Europe is realizing that natural gas is a cleaner fuel and could be used as a bridge to a successful energy transition. While Europe embraces natural gas the US discourages natural gas by making regulations to get rid of natural gas stoves and regulations the buildings do not use natural gas and by regulatory issues slowing down production and pipelines. Today natural gas prices are feeling the heat. 

EBW says that “Weather forecasts ripped higher over the weekend, particularly over the central US, to add 16 CDDs through September 15th. Still, volatility around September final settlement and Tropical Storm Idalia present several possible near-term scenarios for natural gas.” Some of those may include a much smaller than-expected to draw in natural gas supply. Globally Chevron Australian LNG workers vote in favor of a potential strike action. That will support prices as well. Dan Tsubouchi at Energy-Tidbits says that 3.3 bcfd of  LNG supply is now at risk of strike at Chevron’s 2.1 bcfd Gorgon & 1.2 bcfd Wheatstone.

Learn more about Phil Flynn by visiting Price Futures Group.