Tropical Storm Gordon is driving the cost of West Texas Intermediate (WTI) Crude oil above Brent Crude oil and above most other commodities that are being held back by dollar strength and trade war fears, and talk of rising OPEC oil production. The storm, that we warned about last week, is now taken center stage in the oil trade as it is possible that Gordon could be a category 1 hurricane, as it has its sights set on the Gulf Coasts refinery row as well as production areas and shipping.
The National Hurricane Center (NHC) has issued a hurricane warning from the mouth of the Pearl River, Mississippi, to the border between Alabama and Florida. Tropical storm warnings are posted from west of the mouth of the Pearl River, Mississippi, to east of Morgan City, Louisiana, including Lake Pontchartrain and Lake Maurepas, as well as from the Alabama-Florida border to the Okaloosa-Walton County line in Florida.
The storm has already caused oil platform evacuations and we expect to hear about more later today. Bloomberg reported that Gordon, the Atlantic’s seventh storm, could graze the eastern edge of the Gulf’s offshore oil and natural gas platforms. The region produces about 5 percent of U.S. natural gas and 17 percent of crude oil, according to the Energy Information Administration. In addition, onshore facilities account for about 45 percent of U.S. refining capacity and 51 percent of its gas processing. Crews were pulled off two platforms by the Anadarko Petroleum Corp. according to its website. The Louisiana Offshore Oil Port said it is watching Gordon closely, but there are currently no disruptions.
Reuters reported that The Mississippi Emergency Management Agency warned of storm surges of between 3 and 5 feet (1 and 1.5 meters) and told South Mississippi residents to be prepared to evacuate.
Brent crude is up but not quite as excited because as Bloomberg reported OPEC crude production rose in August to the highest level this year as a recovery in Libyan output helped to offset a cut in Iranian exports due to U.S. sanctions. The group’s 15 members, which now include the Republic of Congo, collectively produced 32.74 million barrels a day last month, an increase of 420,000 barrels a day from July, according to a Bloomberg News survey of analysts, oil companies, and ship-tracking data.
Yet, while Libyan production was up last month it probably will fall next month. Libya's Un-backed government declared a state of emergency in Tripoli on Sunday, after days of fighting left at least 39 people dead and could lead to a shutdown of Libya oil exports as it has before.
RBOB futures are up about 6 cents as cash buyers will start to bid up prices to assure they can get ample supply. Diesel prices are also up over 6 cents for the same reason. That should reflect an upcoming pop in price at the pump which will be short-lived if Tropical Storm Gordon does not do any damage
While Gordon is not going to be a monster storm, it reminds us how much tighter the global oil marketplace is. While OPEC raises production, spare production capacity is running at a historic low. Global storage and floating storage have emptied pretty much and global demand has exceeded expectations. Infrastructure spending is still too slow to overcome the growth in global demand and the risk to supply. Oil bears put all their faith in shale oil, to supply the globe, are now becoming painfully aware of shales limitations on the production and transportation side.
Natural gas seems unfazed by the storm. With more production on shore, they are starting to worry about more demand destruction than supply issues. That is one of the advantages of record Nat gas production.
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