RE:RE:Hurricane Harvey devastates Texas Oil Industry......Your assumption, that oil prices could possibly decline is playing out in the commodities markets today. However, I am thinking, that if the Texas oilfields have been hit harder than anyone had first anticipated then it could take longer, than first anticipated, before these fields are back to full production. Even if the fields are relatively unscathed by affects of Harvey in and of themselves operations could well be affected over the short to intermediate term. How so?
Drilling Rigs, heavy equipment such as Cats, front-end loaders, trucks and generators to list a few, need one key ingredient to function. That key ingredient is diesel fuel. Those companies that supply this key ingredient to the oil and gas production and oil services sector get their supply of diesel through the refineries outlets that are down due to Harvey. If they are not producing diesel drilling operations will be on hold. For every day that the rigs are down and unable to replace the oil that is in storage and being drawn down by other refiners coupled with the fact that the US has sold down a large portion of it's strategic reserve, I can see the price of oil beginning to creep up once commodities traders start to put two and two together and realize that the US will have to start importing oil, again, from overseas suppliers in order to fill the gap until Texas refineries are back up and running, In a way this would be a good thing as it may result in a draw down in the existing oil storage glut that exists. It may take a few months for the glut to finally be drawn down enough to make a difference overall but it will then start to cause upward movement in the price of oil. Much to the relief of the Saudi's and OPEC. As I have indicated, in my previous post, the Texas refiners represent about 45% of US Refining capacity and provides the eastern seaboard, including eastern Canada, with a significant portion of refined fuels to this market. East-coast refiners are not enough in numbers or in capacity to make up for this kind of disruption in supply. Further to this, it is coming to the time of the year when refiners shut down for scheduled maintenance and inspections as well as preparation for the production of winter fuels and cannot delay this work for an extended period. Colder weather is not that far away. These scheduled shutdowns will put further pressure on the already tightened fuel supplies adding to further fuel price rises.
Just to go back, a little ways. When OPEC first announced that member states had agreed to cut back their production quotas in order to try and reduce the glut of oil, in storage around the world, in order to boost the price of oil, once it was confirmed that OPEC nations had done so, then US producers moved into the Permian Basin and the Eagle-Ford in a big way and ramped up production to previously unknown levels, to fill the gap created by OPEC. If oil production, in these two key oilfields, is now curtailed, by Harvey, for the intermediate term then the world could finally see the intended draw down in the oil glut, that is in storage and, a rise in the oil price, finally, which could result in signs of life returning to the Alberta oilfields and relief to the Alberta oil and gas sector. As I had indicated, in my previous post, Hurricane Harvey may do for the price of oil that the Saudi's and OPEC were unable to do.