Oil Prices Increase Due to Potential Gulf Storm

Storm Threatens US Gulf Coast

Early Monday saw an increase in oil and gasoline futures as the National Hurricane Center monitored a potential tropical system that could hit parts of the US Gulf Coast later in the week. The storm may impact the upper Texas and Louisiana coasts, which make up around 60% of US refining capacity. Potential Tropical Cyclone Six, also known as Invest 91L, is currently in the southwestern Gulf of Mexico. It's predicted to become a hurricane before it reaches the northwestern US Gulf Coast late Wednesday. This storm is timely, arriving at the height of the Atlantic hurricane season, which has been relatively calm this year. The National Hurricane Center stated in its most recent update that it's too early to determine the exact location and magnitude of the storm's impact. However, the potential for life-threatening storm surge and damaging winds is increasing for parts of the Upper Texas and Louisiana coastlines beginning Tuesday night.

Impact on US Refining Capacity

The latest hurricane trajectory models indicate a high likelihood that the tropical system could make landfall along the Louisiana coast. This region of the Gulf Coast houses around 60% of US refining capacity. Bloomberg data reveals that several refineries are within the storm's cone of uncertainty. John Evans, a PVM analyst, told Reuters that a small recovery in prices is underway due to hurricane warnings that may threaten the US Gulf Coast. However, the broader discussion remains focused on the source of demand and what OPEC+ can do.

Revised Oil Price Forecasts

In recent weeks, Goldman's commodity analyst Daan Struyven, now without "supercycle" permeable Jeff Currie, reduced his projected range for Brent oil prices by $5 to $70-$85 per barrel. He cited weaker Chinese oil demand, high inventories, and increased US shale production as reasons for this change. Struyven's main reason for the reduction is his expectation that OPEC will increase production in the fourth quarter. Morgan Stanley also recently lowered its oil price forecasts, reflecting expectations of increased supply from OPEC and non-OPEC producers amid signs of weakening global demand. The bank now expects the crude oil market to remain tight through the third quarter, stabilize in the fourth quarter, and potentially move into a surplus by 2025. Morgan Stanley reduced its fourth-quarter forecast to $80 per barrel, down from $85, and now expects prices to gradually decline to $75 per barrel by the end of 2025, slightly lower than their previous estimate of $76.

Market Sentiment and Potential Impacts

This information is not new to the market, which currently has a bearish sentiment. However, a tropical system that intensifies in the warm waters of the Gulf of Mexico and knocks out a few refineries could easily drive energy prices up again. This could result in a spike in gas prices at the pump, potentially putting the Biden-Harris administration in a challenging position ahead of the November elections.

Bottom Line

The potential impact of the upcoming storm on oil prices and the US refining capacity is a significant concern. The situation is a reminder of the delicate balance between natural events and economic realities. What are your thoughts on this matter? Feel free to share this article with your friends. Don't forget to sign up for the Daily Briefing, available every day at 6pm.