Right when oil and natural gas production would be ramping up production back to normal levels after Hurricane Gustav’s disruptions, another hurricane turns its way along Cuba toward the Gulf of Mexico. Ike hit the Bahamas with Category 4 strength before its current weaker state as a Category 2 (100 mph) storm over Cuba. But the ingredients that could make Ike a serious threat to US energy markets emerge once it has passed Cuba late Tuesday. If Ike goes over warm water with less wind shear and dry air than Gustav then another bull run for oil and gas may commence.
As I mentioned last week, this Wednesday’s oil market report will show low inventories of crude and refined products such as gasoline. And with Ike’s approach to the Gulf rig infrastructure late this week, the oil report next week is almost certain to show near record low inventory and ignite a price rally.
The main element preventing a rally recently is the rapid strengthening of the dollar. Just today, the dollar has moved to <$1.41 per euro, now more than 12% stronger than its low in early July.
The other major factor for oil markets is the OPEC meeting in Vienna this week. If they decide to cut production, that will pressure oil prices higher. They have been producing more than their official target (especially Saudi Arabia) all summer. So, if they keep production targets the same but rein in actual production to the targets then that could also rally prices up. But a continuation of current high production rates could move oil prices below $100 per barrel for the first time in many months.
If you don’t want to be dependent on weak hurricanes and generous petro-dictators, I recommend you join the sustainable energy transition.
Tags: gas, Gulf of Mexico, Hurricane Ike, Natural Gas, Oil, OPEC