Stormy surges and rising geopolitical risk

Crude oil prices are on the rise as U.S. refiners come back after Hurricane Harvey, and after a big jump in geopolitical risk as North Korea unleashes an alleged hydrogen bomb. The oil industry must watch the weather again as Hurricane Irma has turned into a massive and dangerous category 5 storm. On top of that there are 2 other tropical disturbances that are also in play to potentially disrupt energy production and shipping of imports and exports in the Gulf of Mexico. 

The U.S. refineries are coming back and believe it or not, so is oil production and gas production. Last week Valero Energy restarted two Galveston refineries and are now back to normal production rates. Other refineries in the affected Texas area are restating and should be back to normal in a matter of days. It is being reported that Flint Hills Resources and Citgo Petroleum are in restart mode, but the Exxon Mobil Beaumont, Texas refinery may take more time as flooding damaged a lot of its equipment. On top of that, an oil field is contained by a levee that flood waters breached on Saturday afternoon leaking oil into the streets and a sheen of oil that will have to be cleaned up before a restart.

Yet, just as the industry starts to recover, more storms are going to create havoc. Hurricane Irma is getting most of the attention. This storm is a major threat but other storms may impact energy and lives as well. The National Hurricane Center is issuing advisories on Hurricane Irma, located a few hundred miles east of the Leeward Islands. Reuters reports that Hurricane Irma, a powerful Category 5 storm, plowed toward the Caribbean and the southern United States on Tuesday as islands in its path braced for possible life-threatening winds, storm surges and flooding. 

Hurricane warnings and watches were in effect for parts of the Leeward Islands, the British and U.S. Virgin Islands and Puerto Rico, in preparation for a storm that was intensifying with 150 mph (240 kph) winds, the U.S. National Hurricane Center (NHC) said. “Dangerous Hurricane Irma heading for the Leeward Islands,” the hurricane center said. “Preparations should be rushed to completion as tropical storm-force winds are expected to arrive in the hurricane warning area by late Tuesday.”

But there are other storms we have to worry about as well. The NHC reports that, “Showers and thunderstorms associated with a broad area of low pressure located about 1000 miles west-southwest of the Cabo Verde Islands are gradually becoming better organized. Satellite data indicate that this system is already producing winds near tropical storm force. There is a strong likelihood that a tropical depression or tropical storm will form within the next few days while the disturbance moves west-northwestward at 10 to 15 mph over the tropical Atlantic Ocean.* Formation chance through 48 hours...medium...60%. Formation chance through five days...high...90%. A trough of low pressure located over the southwestern Gulf of Mexico is producing disorganized shower activity and a few squalls. Environmental conditions are marginally conducive for development, and this system could become a tropical depression during the next couple of days while it meanders over the southwestern Gulf of Mexico. Regardless of development, heavy rains associated with this disturbance are likely over portions of eastern Mexico during the remainder of the week. Formation chance through 48 hours...medium...50%. * Formation chance through 5 days...medium...60%.

The storms will play havoc with inventories. We expect to see draws of 3 million barrels in gas, distillates and gasoline. Runs will plummet by 10.

North Korea fears are boosting oil as well. The BBC reports that North Korean leader Kim Jong-un is "begging for war" with his latest and most powerful nuclear bomb test, the US envoy to the United Nations has said. Nikki Haley told an emergency meeting of the Security Council in New York that the U.S. did not want a war but its patience was "not unlimited".  The U.S. will table a new UN resolution shortly to toughen sanctions. However, Russian President Vladimir Putin on Tuesday called sanctions "useless, ineffective and exhausted". China, the North's main ally, has called for a return to negotiations and Switzerland has offered to mediate.

Meanwhile South Korea's navy carried out live-fire naval drills on Tuesday, warning that if the North provoked them "we will immediately hit back and bury them at sea," reported Yonhap news agency. It comes a day after the South's military simulated a missile attack on the North's nuclear test site.