Ida Impact on Gulf of Mexico Continues
(The views and opinions expressed in this article are those of the attributed sources and do not necessarily reflect the position of Rigzone or the author.)
In this week’s edition of oil and gas industry hits and misses, Rigzone’s regular market watchers look at the ongoing impact of Ida, oil and gas price movements, the latest updates from the U.S Energy Information Administration and more. Read on to find out what they had to say.
Rigzone: What were some market expectations that actually occurred during the past week – and which expectations did not?
Tom Seng, Director – School of Energy Economics, Policy and Commerce, University of Tulsa’s Collins College of Business: Hurricane Ida’s impact on U.S. Gulf of Mexico (GOM) production and infrastructure, both offshore and onshore, continues to delay the restart of supply and refining capacity. Essential oil industry infrastructure from offshore platforms to underwater gathering systems, onshore pumping and storage, supply ports and even heliports have been affected. The U.S. Bureau of Safety and Environmental Enforcement (BSEE) estimated that 76 percent of oil production and 74 percent of natural gas production was still shut-in as of September 9. However, wind damage, flooding and power outages onshore have resulted in the continuing curtailment of roughly one million barrels per day of refining capacity, adding a bearish tone to the demand side of the equation. As such, WTI could not hold the $70 level surpassed last week while Brent crude fell below the $72 mark in a holiday-shortened trading week. Adding to oil’s downside was the news that Saudi Arabia plans to lower the price at which it sells crude in Asia. Furthermore, China announced it would release some of its petroleum reserves to offset the loss of U.S. GOM supplies … Despite this week’s downward pressures, WTI remains about $19 per barrel (40 percent) higher than first-of-the-year.
This week’s EIA’s Weekly Petroleum Status Report reflected both the supply and refining outages caused by Hurricane Ida. Commercial oil inventories decreased by -1.5 million barrels while industry analysts were calling for a -2.5 million barrel drop. The API reported that inventories decreased by -2.9. Total crude stored now sits at 424 million barrels, holding at six percent below the 5-year average for this time of year. Refinery utilization was 81.9 percent vs. 91.3 percent the prior week. Total motor gasoline inventories saw a decline of -7.2 million barrels and are now four percent below the 5-average for this time of year. The API had called for a decrease in gasoline stocks of -6.4 million barrels. Distillate inventories decreased by 3.1 million barrels and have now fallen to 12 percent below the 5-year average. Crude oil stocks at the key Cushing, OK. Hub rose by 1.9 million barrels to 36.4 million barrels, or about 48 percent of capacity there. No crude was drawn from the Strategic Petroleum Reserve. U.S. oil production dropped to at 10 million barrels per day on the loss of GOM supply.
The U.S. economy failed to help support crude prices as the Dow, S&P and NASDAQ all fell from their recent record highs. Strength in the U.S. dollar this week also helped to stifle any rally in oil prices.
Phil Kangas, US Partner-in-Charge, Energy Advisory, Natural Resources and Mining, Grant Thornton LLP: Not surprisingly, rig counts saw a pause in their long upward climb after Hurricane Ida knocked out production in the Gulf Coast. Baker Hughes reported rig counts ended last week down 11, with offshore assets in the Gulf of Mexico accounting for the largest reductions. Both WTI and Brent prices continue their recovery from the mid-August losses, spurred by the constricted supply, improved demand from China and OPEC+’s decision to maintain the planned modest supply increases through the fall.
Samuel Indyk, Senior Analyst at uk.investing.com: The demand picture surrounding Covid-19 has remained on a similar track in the latest week. There are signs that things are improving in China which should help the recovery in Asian fuel demand. The picture in the U.S. and Europe remains steady and although there is a risk of a resurgence as we approach winter in the northern hemisphere, it is likely that the demand recovery can continue.
Mark Le Dain, Vice President of Strategy at Validere: Significant Gulf of Mexico supply remains shut-in as refiners are starting to come back online. This dynamic should drive a bullish storage report next week, as storm related demand loss has also rebounded.
Tom McNulty, Houston-based Principal and Energy Practice Leader with Valuescope, Inc: Natural gas has doubled in price since April. It is essential for power generation and for many downstream industrial processes and demand has continued to rise as production has fallen. The impact of Ida will be transitory; the supply demand balance must be restored by significant, longer term increases in U.S. production.
Rigzone: What were some market surprises?
Seng: The spread of the Covid-19 virus variant and the possible demand destruction appeared to take a backseat to the turmoil caused by Ida. Certainly, $5.00 for October 2021 natural gas futures was a surprise.
Kangas: The extended damage from Hurricane Ida was a notable surprise. According to Bloomberg estimates, Ida’s loss of crude production in the 10 days following the storm was 32 percent higher than Katrina in 2005, and 42 percent higher than Gustav/Ike in 2008 across like periods. In the week following the storm, the Bureau of Safety and Environmental Enforcement estimated that nearly 90 percent of U.S. Gulf of Mexico production continued to be shut in.
Indyk: The length of time for oil production to come back online in the Gulf of Mexico has been somewhat surprising. The latest data from the Bureau of Safety and Environmental Enforcement estimates that 76.88 percent of oil production in the GOM remains shut-in, over a week after Hurricane Ida swept through the area. The EIA reported that weekly U.S. oil production declined by the most on record post Ida.
Mcnulty: Why has Russia been exporting less gas than forecasted? All of the reasons that I can think of are not overly good. I’m like a broken record, but the U.S. has to continue to emphasize natural gas as a critical energy commodity that enhances, rather than delays, the energy transition. And also ensure that it can supply Europe as needed.
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