Refineries Mostly Spared By Hurricane Laura’s Destruction
August 28, 2020
The reports that have come in so far have indicated that Hurricane Laura has spared a majority of refining capacity, and it is expected to only impact 1.0 to 1.2 million bpd versus 2.6 to 3 million bpd previously estimated. The other thing that needs to be watch is the fact that refiners may take this shut down as a way to hold back production and not be in too big a rush to get fired back up and running. Refinery economics are not great right now and there is an abundance of inventory, which may lead some refiners to drag their feet with respect to getting back up and running. The market is basically back to where it was prior to the storms and looks like it will congest again looking for direction. Monday is the expiration of NYMEX ULSD and RBOB September futures maybe that will provide some excitement short term for those contracts.
We also got another report on jobs with initial claims right at 1 million again and continuing claims down from 14.844 to 14.353. That is still a lot of people out of work and not driving to work every day that impacts gasoline demand.
I feel a bit like I am in the minority with respect to abundance inventories of energy products. So, I am willing to admit that is my current bias, so I stay on the lookout for support to the other side. Here are some comments from trader Phil Flynn of the Price Group. The truth is that after the storm passes, the US 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.
Virtually all countries except for Saudi Arabia believe that demand expectations will not recover to 2019 levels until 2021. The latest monthly estimates from IEA, suggest that consumption will not recover to pre-pandemic level until next year.
Iraq’s crude oil exports fell so far in August, suggesting the country is delivering more on its pledge to cut supply under an OPEC+ deal. Iraq’s southern exports up to August’s 25th has fallen to 2.63 million bpd from 2.67 million bpd in July. Iraq’s total exports fell by 80,000 bpd as of August 25th. In July, Iraq’s compliance rate with OPEC+ output agreement was 73%.