Delta and Gamma are going to create volatility in the energy markets. No, I am not talking about the ‘Greeks’ that measures the risk variable of options or the relationship of the opportunity with another underlying variable but Tropical Storm Gamma and Huricane Delta. Hurricane Delta is not neutral but on track to become a Category 3 hurricane. It will shut down a significant portion of Gulf of Mexico oil and gas production and create a threat to the U.S. “refinery row’ and flooding in soaked Louisiana.

S&P Global Platts reported that B.P. is, “securing its offshore facilities and evacuating non-essential personnel” from its four offshore platforms. B.P.’s platforms include Thunder Horse, Atlantis, Mad Dog, and Na Kika. Also, BHP has begun evacuating non-essential crews on October 5 at its operated Shenzi and Neptune platforms, company spokeswoman Judy Dane said. “We have plans in place to be fully evacuated and shut-in by Wednesday [October 7],” Dane told S&P Global Platts. Also, Occidental Petroleum said it is “carefully tracking” Delta, adding all its facilities in the U.S. Gulf have plans to prepare for weather-related events. “Those in the storm’s potential path are implementing those procedures,” Oxy said but was not more specific.

The A.P. reported that, “At least six people died and thousands were evacuated in southeastern Mexico after Tropical Storm Gamma lashed the Yucatan Peninsula’s resort-studded coast near-hurricane force winds and drenched Tabasco and Chiapas states, authorities said Sunday.

Yet the rally in oil and gas is not just about the weather but signs that gasoline demand is improving and a general risk on feeling with the increased odds of an aid package and a healthy ISM nonmanufacturing number in the U.S.

Oil is also getting support from strong Chinese’s imports even though some speculate that the Chinese buying spree may end. Reuters reported that September imports are estimated by Refinitiv Oil Research to be 11.71 million barrels per day (bpd), the fifth straight month that arrivals have exceeded 11 million bpd. If the official customs data, due October 13, is in line with the Refinitiv figures, it would mean that the last five months have been the strongest on record for China’s crude imports, including the record high of 12.9 million bpd in June, according to Reuters.

MarketWatch reports that Norwegian oil-and-gas primary Equinor ASA said four oil fields in the North Sea had been shut down due to a strike. That brings the total number affected by the strike to six, which, according to the Norwegian Oil and Gas Association, could see as much as 330,000 barrels of oil equivalent lost per day. That’s equal to around 8% of Norway’s oil and gas production.

The American Petroleum Institute report is out at 3:30 central time today, and another crude and gas draw could help the rally. While the storms in the Gulf of Mexico will confuse things, the trend in gasoline and distillates is lower. We think that even though volatility may come back in oil, the seasonal bottom is forming.

More layoffs in big oil and the lack of capital is assuring us higher prices in the future. Covid 19 demand destruction has caused energy companies to try to reinvent themselves to a world beyond oil. The problem is that world does not exist, and the massive cutbacks and this move towards renewables will send prices higher and put the global economy at risk. The latest from the F.T. ExxonMobil will cut up to 1,600 jobs in Europe as the significant oil struggles with the destruction to demand caused by the coronavirus pandemic. The biggest U.S. oil company by market capitalization on Monday said the virus had “increased the urgency” of reducing its costs and said the job losses would be made by the end of next year.

 Bloomberg News reported that, “JPMorgan Chase & Co. agreed to take over a bankrupt shale explorer that failed to lure other bidders, a new low for an industry that was brought to its knees by the global pandemic. Sable Permian Resources LLC — a Houston-based oil producer that merged with part of the late shale pioneer Aubrey McClendon’s empire in 2019 and filed for Chapter 11 in June — agreed to sell itself to the lender after receiving no other bids for its assets”.

Natural gas is also on a tear. Andrew Weissman of EBW Analytics says that it was caused by the fact that the Cameron LNG (massive source of demand) about to restart (power restored late last week, first LNG tanker arrived yesterday, 2nd expected today). Will tighten the cash market considerably at Henry Hub and reduce fears regarding the availability of sufficient storage – which had been leading the market down. Also, a cooler shift in mid-Oct weather. He also says that the recent declines in winter month contracts last week was unjustified. (I tweeted last week that while I couldn’t predict how far prices would fall we were about to see one of the best buying opportunities in some time. He also said there was a short – squeeze. (I also tweeted that while November contract could fall, anyone who shorted it did so at their peril)
Thanks,
Phil Flynn

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