As If Florence Wasn’t Enough

As if Florence was not enough. Not only are we preparing for Hurricane Florence in what could turn out to be the strongest mid-Atlantic storm in recorded history, now we must deal with the risks of more storms that are heading to and developing in the Gulf of Mexico, as well as lots of news on regular and changing market fundamentals. We had American Petroleum Institute Data (API) that showed a major drawdown in crude supply as well as a bigger than expected increase in product supply. You have violence in Libya that could further impact their oil exports and you have Russia warning us about a ‘fragile” oil market. You have the Brent oil trading at a huge premium to the U.S. West Texas Intermediate contract, which will cause U.S. oil exports to surge back to record highs, but at the same time you have a report from the Energy Information Administration (EIA) that has once again lowered the outlook for U.S. oil production as U.S. shale struggles with bottlenecks, infrastructure, and profitability. While the challenges in the market are nothing compared to what millions of Americans will face, these storms both real and figuratively can impact prices of many commodities across the board.

When the storms arise, many traders turn to meteorologist Michael Schlacter for storm predictions. He has dire predictions about the impact of Hurricane Florence. He warns that the extreme storm surge will reshape Carolina’s shoreline forever. He says that Florence may then stall over land, becoming Mid Atlantic’s version of Harvey’s flooding.

While this type of flooding may cause significant demand destruction, it can also knockout pipelines that travel through the states taking down power, and shutting down pipelines like the Colonial Pipeline as it carries more than 1 million barrels of gasoline per day from Texas and Louisiana to the East Coast.

While most believe that Florence will cause widespread demand destruction, the market is already pricing in risk to supply as the Atlantic storm machine keeps churning them out.  Michael Schlacter says that the now Tropical Storm ISAAC is making a bee-line for Lesser Antilles, likely as a Hurricane. He says it should strengthen back to Hurricane status prior to reaching the Caribbean, it may wane within the Caribbean Sea sheer, but future impacts to North America remain alive.