Hurricane Cleanup

The petroleum complex did a post-hurricane drop as some of the worst-case scenarios predicted from Hurricane Laura did not play out like past hurricanes. The price of oil and products weakened and probably more so as if there was not a hurricane in the first place. No reports of major damage to refineries or massive flooding should allow the industry to bounce back quickly. While refineries may stay shut for weeks, they will use this opportunity to do maintenance, and after some seasonal weakness in prices, petroleum should resume its longer-term upward trend. That is not to say that Hurricane Laura did not do extensive damage and will hit demand in the short run, but we should get that back when we rebuild on the back end.

The truth is that after the storm passes, the U.S. oil supply situation will continue to tighten. Lower OPEC plus production, improving demand, and soon, rebuilding from Hurricane Laura will send supplies lower. We are in maintenance season, but the case for supply tightening is solid.  

Iraq is not cheating on production quota anymore, and that bodes well for the OPEC plus alliance going forward. Reuters reports that Iraq's compliance rises above production cuts is over 100%. Southern Iraqi exports up to August 25 have dropped to 2.63 million barrels per day (bpd), according to the average figures from Petro-Logistics, which tracks tanker shipments data. That is down 40,000 bpd from July's official figure for southern exports of 2.67 million bpd. So Iraq is making up for past cheating offset OPEC plus tapering off of their historic production cut. 

Norway is throwing in the towel on U.S. shale. Oil Price dot com says that, "Norway's Equinor will not drill any more wells in the U.S. shale patch this year as it adjusts to a lower-for-longer oil price environment," a spokesperson for the company said as quoted by Hart Energy. The company stopped drilling in the Bakken, and the Marcellus shale plays where it has acreage in March this year as it slashed billions in spending in response to the oil price collapse. Now, Equinor will also be cutting jobs in the shale patch, although it has yet to specify how many. On the silver lining side, however, the company has no asset sale plans, which means it could still have long-term plans for its shale oil and gas operations in the United States. "There is no change in our acreage portfolio. The action that we are taking now is to ensure that our business is profitable in a lower price scenario," the spokesperson said.

"Equinor is in a strong financial position to handle market volatility and uncertainty," outgoing CEO Eldar Sætre said in March. "Our strategy remains firm, and we are now taking actions to further strengthen our resilience in this situation with the spread of the coronavirus and low commodity prices.”

U.S. energy is already getting back online. Reuters reported that at the peak U.S. producers had shut 1.56 million barrels per day (bpd) of crude output or 83% of the Gulf of Mexico’s production. In contrast, nine refineries had shut around 2.9 million bpd of capacity, or 15% of U.S. processing capacity, ahead of the storm.