The Tropics Remain Quite Active

Harvey appears to be all that was promised and then some, and accordingly we are seeing the market reactions one would expect. September contract RBOB gasoline prices are up 2-3% on refinery outages while October crude prices are down over 3% as there are far fewer open refineries to process it. Crack spreads continue to balloon, as the storm continues to be far more of a refinery disruption story than any kind of production story. Natural gas prices have found a bit of support today but are up just less than a percent as production disruptions are not seen being enough to significantly move the market.

Still, impacts from Harvey are not yet done. NOAA and the Weather Prediction Center predict another 1-2 feet of rain being possible across parts of the Gulf Coast through the end of the week, which will continue to exacerbate flood issues.

Flooding rains look to move a bit further east through the week and get into much of Louisiana as well, which could allow for additional disruptions beyond what we have already seen over the weekend.

Harvey is now re-emerging back over the Gulf of Mexico where it will briefly stall before trending back towards Texas, as seen on the model spread below.

Most guidance has the center of Harvey remaining west of Louisiana and instead moving towards Houston, but rain will continue on the eastern flank of the storm which is why such impressive rainfall amounts are still expected all the way to New Orleans.

As the storm sits over the Gulf of Mexico the next couple of days it could begin to slowly re-strengthen, though any strengthening does not look to be significant. For now almost all model guidance keeps the storm from re-strengthening to hurricane strength, and a lot of guidance keeps it as just a weak tropical storm, as seen below courtesy of Tropical Tidbits.

Thus the main impact we expect will continue to be the flooding rain across the region, and not any serious or sustained wind damage (though if the storm strengthens back to a strong tropical storm there could still be some power outage issues).

However, this is not the only tropical disturbance worth monitoring at this time. Potential Tropical Cyclone 10 is developing just off the Southeast and appears likely to develop into a tropical storm by tomorrow morning.

As its core cools it will transition into a subtropical storm, but is still likely to bring gusty winds and heavy rain to the eastern Carolinas. Rain and cooler air is expected to move up the East Coast as well. From an energy perspective, all this storm will do is slightly decrease cooling demand wherever it moves with maybe a few power outages as well. The storm will quickly slide out to sea by late tomorrow night, though, with any market impacts minimal.

As if that were not enough, the National Hurricane Center has outlined another disturbance moving off of Africa that they see as likely developing into a tropical disturbance over the next 5 days.

The storm remains very far out at sea and attempting to judge its intensity or future track this far out is virtually impossible. However, early indications are that it is likely to strengthen and could move towards the U.S. It will need to be closely monitored over the coming week to see what kind of threats it may pose.

Thus we continue to have an active week ahead of us in the tropics with a number of disturbances to keep monitoring. Yet, as we have seen with Harvey, in the new American energy landscape tropical disturbances have a far different impact than they used to. Rather than spiking oil and gas prices by taking a number of offshore rigs/wells offline for significant periods of time, the target this time around has been refineries as onshore fracking has generally been able to continue unabated (though there were a few slowdowns reported in the Eagle Ford basin). Production impacts were lessened even further by a storm that at its peak stayed west of most offshore wells, yet even if they had been more directly targeted it would be hard to see nearly the type of supply shortage that these markets had to deal with just over a decade ago.

We continue to monitor the impacts of both Harvey and the medium-term weather pattern on energy prices across the country.