Irma To Become A Major Hurricane Shortly, But Energy Markets Rightly Focus Elsewhere

The tropics certainly are active right now. Yesterday we had Tropical Storm Irma form, and now today it is already a hurricane. The storm is still forecast to take a rather unusual west-southwest track across the Atlantic, and this puts the United States at an elevated risk of landfall as it is less likely that the storm turns harmlessly out to sea. 

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Of course, this is not to say that Irma cannot harmlessly turn out to sea. That is one of a series of possibilities from this storm, as everything from a Gulf of Mexico entrance to a Florida or East Coast landfall to re-curving out to sea remains on the table. Simply put, the current model spread does not go far enough out accurately for any real idea as to which is going to occur, as seen below on one model spaghetti plot courtesy of Tropical Tidbits. 

Among these models there is a strong consensus that the storm will become a major hurricane, and confidence in such strengthening over the next few days is high (image below again courtesy of Tropical Tidbits). 

It is the eventual track that remains virtually unknowable due to how far west the system still is in the Atlantic and the amount of noise that clouds the forecast going out over time. Interests across the East Coast should monitor the storm closely, but it will be a few days before we get much of a better sense about whether a Gulf of Mexico entrance or more of an East Coast/potentially out to sea track is significantly more likely. 

In the meantime, the National Hurricane Center is now monitoring two different disturbances for gradual development over the next five days, as seen below. 

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The system south of Irma has very little going on and development will be slow, though that could be the next disturbance to watch after Irma should it begin to develop. However, more attention is currently being placed over the western Gulf of Mexico, where the same system we mentioned yesterday could still form. Confidence in any system forming here remains quite low, and for now the National Hurricane Center still has only a 20% chance of tropical cyclone development in the next 5 days, but a number of models do show some development possible in that 6-9 day time frame outside the NHC's current scope. Such development could put some areas impacted by Harvey back at risk, though it is again far too early to know exactly where or how bad any impacts would be. 

For the energy markets, the implications of these storms are even more unclear, as both are far enough away that they are only risks worth monitoring (and for some, maybe hedging against). Rather, we saw oil and its products move today again because of the lingering effects of Harvey, with a number of large refineries and pipelines being severely disrupted. As seen below, NYMEX crack spreads yesterday settled at their highest level since 2015, and if they continue increasing should hit levels not seen since 2013. 

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This was something we had been highlighting in our reports to clients much of last week, and we mentioned here on this free blog as well as Harvey approached Texas. Our Note of the Day from last Wednesday picked up on the idea that crack spreads appeared likely to keep running, and that sentiment held through the past week. 

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On the natural gas side of things, prices rallied significantly today, but this appeared to be in spite of weather, not because of it. Rather, the Energy Information Administration announced one of the tightest weekly storage change prints of the summer, with the storage injection small enough to raise concerns about the supply/demand balance heading into the winter heating season. 

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This print came in spite of the weather; TDDs last week were just 2 above average and yet we saw this EIA print come in far below the 5-year storage injection average (30 bcf vs. 67 bcf). And weather the next couple of weeks still looks quite cold across the East, yet the market has remained tight enough to absorb that. Natural gas bulls have to be cheering today's rally in the face of the September chill they know is coming.