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The Energy Report: Sucker Punch

By Phil FlynnCommoditiesSep 22, 2019 01:18AM ET
The Energy Report: Sucker Punch
By Phil Flynn   |  Sep 22, 2019 01:18AM ET
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While most of the oil trade was focused on comments coming out of Iran and Saudi Arabia, tropical depression Imelda delivered a sucker punch to the Texas coast. Unrelenting rains flooded shut refineries. Cut power to others and shut down a distillate pipeline.

Exxon Mobil's (NYSE:XOM) Beaumont shut its 369,024 barrel-per-day (bpd) crude oil refinery in Beaumont, Texas, on Thursday morning because of flooding from tropic storm Imelda. Reuter’s reported that ship pilots stopped boarding vessels on the Beaumont, Texas, ship channel because of heavy weather on the waterway connecting Beaumont with the Gulf of Mexico, the U.S. Coast Guard said.

Several other refineries in southeast Texas cut back production as well according to Reuters. Valero Energy Corp (NYSE:VLO) reduced production at its 335,000 bpd Port Arthur refinery because flooded roadways made it impossible to haul sulfur away from the plant. The gasoline-producing fluidic catalytic cracker was running at 60% of its 110,000-bpd capacity because of a compressor outage at Lyondell Basell Industries 263,776 bpd Houston refinery. A Lyondell spokeswoman declined to discuss operations at the refinery. Total SA (PA:TOTF) cut coker production in half at its 225,500 bpd Port Arthur refinery because heavy lightning in the area made it unsafe to operate a crane used to collect petroleum coke produced by the coker.

Motiva Enterprises’ 607,000 bpd Port Arthur plant remained in production, but the largest U.S. refinery has been operating at half capacity since early September because of a planned multi-unit overhaul, sources familiar with operations said. TC Energy Corp’s 750,000-bpd Marketlink oil pipeline from Cushing, Oklahoma, to Nederland, Texas, was also shut as flooding disrupted operations at Gulf terminals, traders familiar with the matter said. Energy Transfer LP’s Nederland terminal, located between Beaumont and Port Arthur, was shut due to heavy rains, five market sources said. Phillips 66 (NYSE:PSX) said it shut its operations at its Beaumont terminal as a safety precaution due to the flooding.

The good news is that LNG exports are moving. Reuters reported that, "Officials at Cheniere Energy Inc’s Sabine Pass liquified natural gas (LNG) terminal in Louisiana and Sempra Energy’s Cameron LNG terminal in Louisiana said there had been no impact on operations from Imelda. Officials at Freeport LNG said there was no significant impact from the storm on its Freeport, Texas, facility.”

Saudi Arabia Aramco are trying to convince the world that they can bring their damaged Abqaiq processing plant back online by the end of September. The company is giving a tour to journalists of the damage and trying to convince them that they can repair the damage. One might wonder why Saudi Arabia is working so hard to convince us that things will be soon “back to normal” when you would think that higher oil prices are in their interest. In the meantime, Saudi customers are scrambling to look for other sources of supply. Now the question is can they convince the market that they can keep their oil fields safe.

Oil traders still await the response to the attack. Iran Foreign Minister Mohammad Javad Zarif’s said that an "all-out war” would break out if any country attacks them. This comes as U.S. Secretary of State Mike Pompeo tweeted that the, “Iranian regime's threatening behavior will not be tolerated." Yet at the same time it appears that the Trump Administration is looking to other options as to avoid a war.

Saudi Minister of State for Foreign Affairs al-Jubier though is waring that, “Complacency towards Iran will encourage it to commit further hostile acts with implications for international peace and security”. He said that the, “Attack is an extension of Iran’s policies of sabotage and aggression against which the world must take a stance. The attack on Aramco facilities is an attack on the world by targeting energy supplies and world markets.” The oil market is awaiting the response.

Then we have U.S./China trade talks. China is hinting that they could import large amount of oil from the U.S. if there is no trade war. China is already looking to the U.S. to fill the void of lost Saudi crude.

The loss of the Saudi crude processing unit should lead to a shortage of lighter blends of crude. The Saudis are drawing down their oil in inventory and they need to hit their September target for the restart of their unit or they will run out.

The Energy Report: Sucker Punch
The Energy Report: Sucker Punch

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