DTN Provides Oil & Gas Market Outlook for Upcoming Storm Season

Dominick Chirichella - DTN Risk Management and Advisory Services Director,
May 3, 2018

Oil Market Changes and Lessons Learned from 2017

The Forecast

All predictions point to an average hurricane season, however, that does not mean the oil market will continue at status quo. An average hurricane season entails six to eight storms, and as we saw in 2017, only one is needed to disrupt the economy.

Recapping 2017

The summer and fall of 2017 were marked by the impact of hurricanes Harvey and Irma. These storms had immediate impacts on the market, about half of which was the result of preemptive shut ins in land-based shale production in Texas. Harvey also caused the loss of up to 900,000 barrels of fuel each day, in addition to more lasting effects on oil and gas infrastructure, as much of it is located in the Gulf Coast.

U.S. Exposure and Global Impact

Regardless of the size of the storm, it can affect water traffic and slow down or halt production. Hurricanes and tropical storms disrupt operations and deplete supply and because the U.S. is a major exporter of fuel that comes from the Gulf Coast, any storm will impact international trade.

In addition, U.S. oil inventories are below the five-year average, therefore, even a less severe storm could result in surging prices and economic disruption. Inventory will be under close watch this hurricane season, as unplanned shut-downs could force a halt in production, leading to price spikes.

The United States has also become a much more global player in this market than it was a few years ago, so any disruption would be impactful world-wide. This means that a single storm in the U.S. can affect the global market in a very different way than it did previously. Impacts could include unexpected lack of inventory, delayed exports, or price spikes that deter domestic purchases and encourage an increase in exports.

Other Impacts

Amidst unpredictable market factors, OPEC is unwavering. Current inventories of crude and refined fuels are approximately 170 million barrels below February 2017, and is a direct result of consumer demand and the massive inventory destocking caused by OPEC’s crude oil production cuts.  We anticipate the OPEC deal to continue beyond 2018 as there is no basis for them to make a change now, especially with added assistance from other countries and rising prices.

Crude prices are likely to continue to move upward to the mid-80s over the next sixth months, barring any unforeseen geopolitical or weather impacts. This could lead to some elasticity in demand and directly impact consumers with gas prices skyrocketing to the highest they have been since 2014.

Join us for our upcoming 2018 Hurricane Outlook with Aaron Studwell, our marine and offshore expert and meet the entire marine & tropical meteorological team based in Houston.