Storms A Brewing

Oil closed back above $70 a barrel as storms, both real and politically, started to develop. Already on the rise after U.S. oil supply fell 2.6 million barrels this week that raised even more concerns about the market’s ability to replace plunging Venezuelan oil production and Iranian exports, that reportedly are already falling oil supply. Now you get Mother Nature involved with more storm activity brewing out in the Atlantic, then you have a very bullish outlook.

The only thing that is pulling oil prices back down today is another force of nature, President Donald J. Trump. The President has threatened to pull out of the World Trade Organization (WTO)if they don’t ‘shape up” and put more sanctions on China that would hit 50% of all China’s imports. Yet, China’s oil demand is staying strong regardless. China reported today that factory activity was higher than expected in August, with the official manufacturing Purchasing Manager’s Index (PMI) expanding at 51.3.  A lot of winds are blowing but our mid-month call that the lows for the year are most likely in for oil is looking solid at this point.

The Labor Day holiday brings back memories of monster hurricanes from the 1935 Labor Day Hurricane Katrina and recent memories of the devastation of Hurricane Harvey. Oil saw more buying come in as traders covered shorts in part because of new storm developments that may not turn out to be anything major, but could impact shipping and operations around the Gulf of Mexico next week. Still, traders don’t want to take chances over the long weekend, especially one with bad storm memories.

The National Hurricane Center issued advisories on Potential Tropical Cyclone Six, located a couple of hundred miles east-southeast of the Cabo Verde Islands. They put the formation chance through 48 hours…high…90 percent. Most models show that the storm will miss land but how it impacts shipping lanes remains to be seen. The storm that oil traders really moved on is much smaller but is expected to end up in the Gulf of Mexico and its track is right into Refinery row after passing over Florida. The NHC called it a tropical wave and is producing a large area of cloudiness and showers from Hispaniola eastward to the Leeward Islands and the adjacent waters. This activity is forecast to spread westward to west-northwestward, but strong upper-level winds are expected to prevent any significant development of this system during the next several days.