VIDEO: Oil report for August 25, 2017
Energy prices are on their way up as a major hurricane is set to hit the U.S. within hours. Hurricane Harvey, at the time of this writing, is forecast to become a high Category 3 hurricane, the strongest hurricane to hit the U.S. since at least 2008, and perhaps since 2005. The storm is heading directly for the coast of Texas between Houston and Corpus Christi, where many oil refineries are located. “It is becoming pretty clear this morning that Harvey will be mentioned alongside Katrina and Sandy in the history books,” Todd Crawford, chief meteorologist at The Weather Company, told Bloomberg.
Hurricane Harvey forces shut downs. The Gulf Coast is home to 45 percent of the U.S.’ refining capacity, and nearly 20 percent of the nation’s oil production. Corpus Christi is also a major port for oil and refined products coming in and out of the country. Gasoline prices spiked more than 4 percent to their highest levels in weeks as roughly 1 million barrels of refining capacity was shut down over the past 24 hours. But crude oil prices did not receive the same attention – only a few offshore platforms were affected, and the expected outage of refineries actually means demand for crude will dip as downstream operations pause. Up to 35 inches of rain are expected, brining life threatening winds, floods and storm surge. Royal Dutch Shell (NYSE: RDS.A),ExxonMobil (NYSE: XOM) and Anadarko Petroleum (NYSE: APC) evacuated their employees from the area. As of now, government data suggests that 10 percent of the Gulf’s oil production – about 167,000 bpd – along with 14 percent of its natural gas production will be curtailed.
Oil and gas industry cautions Trump admin on deregulation. According to Politico, the U.S. oil and gas industry is growing a little concerned that the Trump administration is giving them too much. The deregulatory push at the EPA and Department of Interior have handed the industry huge wins, but some are concerned that it could set the stage for some sort of accident – and oil spill or methane explosion – from an individual company that would result in serious damage to the entire industry. At worst, the regulatory apparatus could swing back in the other direction, especially under a new administration. Companies like ExxonMobil (NYSE: XOM) and BP (NYSE: BP), for example, see only minor costs to complying with methane emissions rules, which are targeted for rollbacks by the Trump administration. It’s a rare case of an industry cautioning the government not to grant them too many favors.
OPEC to consider extension of deal at November meeting. The WSJ reports that OPEC will consider all options when it meets in Vienna in a few months, including an extension of its production cut deal beyond March 2018. And at least one member, Angola, is pushing for an extension. “It is better to cut the level of production and make the price of oil rise instead of producing at the max level and selling at low prices,” Angola’s oil minister Jose B. de Vasconcelos, said in an interview. Also, an OPEC source told the WSJ that abandoning the production cuts, as of right now, looks unlikely. “OPEC is not looking at an exit strategy,” the person said. “OPEC is looking at a continuity strategy. It’s not like every member will go their own way.”
Chevron CEO to step down. The WSJ reported that Chevron’s CEO John Watson is expected to step down, although the company declined to comment. The transition will be gradual, but the WSJ says that Chevron is seeking someone to help them evolve with the rapidly changing energy landscape. The oil majors are eschewing megaprojects and looking for leadership “adept at squeezing every last dollar from a barrel through refining, and shorter-term investments that turn a profit faster.” For now, the leading candidate is Michael Wirth, a refining specialist at Vice Chairman at Chevron.
EIA data offers tepid support for bullish case. The EIA reported drawdowns in both crude oil and gasoline inventories this week, a sign that market tightening is continuing. However, the inventory declines were smaller than in recent weeks. Crude oil production also ticked up once again, rising by an additional 26,000 bpd. The market continues to proceed towards rebalancing, but major investors are waiting to see if the drawdowns continue after summer when peak seasonal demand subsides.
BHP Billiton to exit shale. BHP Billiton (NYSE: BHP) announced plans to dispose of its shale assets after a lengthy review. The announcement pleased unhappy shareholders who have argued that shale was not a part of the company’s core business. “That was our approach. We didn’t see it fitting strategically in BHP. We think they can realize value ahead of market expectations for the U.S. onshore business,” Tribeca analyst James Eginton said. Tribeca was trying to push the company to dispose of its shale assets. The sale is another sign that U.S. shale is losing some of its luster.
Renewable energy transition means geopolitics of rare earth minerals. The rapid adoption of electric vehicles (transportation) and solar and wind (electricity) will not solve the problem of geopolitics of energy. While countries might reduce their dependence on the volatile Middle East, the raw materials used to make clean tech also come from a relatively few – and in many cases, unstable – nations. Cobalt in the Democratic Republic of the Congo, indium in China, lithium in South America, to name a few.