It may not feel like it, but we’re coming up on the peak of the Atlantic hurricane season. What was predicted to be a historic season for storms has been largely quiet for Texas, other than Hurricane Beryl, which made landfall in July.
That’s certainly been a relief for the energy industry, which can take a hit when strong storms blow into the Gulf of Mexico and impact Texas’ energy-producing coastal region.
Still, the season isn’t over until it’s over, and late summer storms aren’t out of the question; Tropical Storm Francine has formed in the Gulf of Mexico. Energy analyst Matt Smith shared a look at what may be ahead, and how it could affect the markets.
This transcript has been edited lightly for clarity:
Texas Standard: Tuesday marks what’s considered the peak of the Atlantic hurricane season. It feels like there’s been a lull in activity for Texas at least since Hurricane Beryl. What does the forecast look like?
Matt Smith: As you say, yes, Hurricane Beryl wreaked havoc, particularly for Houston. It was the worst-case scenario for millions of people there who lost power. But from an energy perspective, it was relatively minimal in terms of the impacts to productions and refineries.
It has been a quiet hurricane season, particularly as it was expected to be hyperactive. But that said, the season isn’t over until the end of November, and there’s a number of different storms that are in the Atlantic right now or potential storms that that could pop up.
Well, as you say, there is a current storm in the Gulf of Mexico. As I understand it, it’s heading more toward Louisiana. But how could that develop over the next few days?
[Tropical Storm Francine is] looking to make landfall probably Wednesday into Thursday. And even just over the weekend, it was looking as those heading towards Texas, but now it’s looking like it will head further east and make landfall in Louisiana there.If that were to happen, it would be more bullish for oil prices, because we would likely see Gulf of Mexico production being shut in. Whereas if a storm was heading towards making landfall in Texas, that kind of leans more bearish for oil prices and bullish for products such as gasoline because of the threat of refineries being damaged.
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Aside from hurricane season, we’ve seen oil prices basically dropping, causing OPEC+ to halt their plan to unwind production cuts. What’s driving this drop?
It’s been crazy. We’re now, $68; we were at $77 for WTI, that U.S. benchmark, in mid-August, and we were at $82 in early July. So we’ve seen a drop of as much as 20% in the last couple of months here.
Now, that drop has been driven by several things. The sell off in the last week and intermittently over the last month or so has been driven by broader market weakness. So as you see equity markets selling off, you see crude being kind of caught up in that slipstream.
But as you mentioned there with OPEC, OPEC has made massive production cuts in recent years, but there’s still a lot of oil coming to the market from non-OPEC countries. So that’s Brazil, Guyana, but also North America with the U.S. and Canada. And so there’s that; there’s weaker demand from China. And so it’s a combination of all these factors dragging prices lower.
Well, there’s always the silver lining of falling oil prices meaning lower prices at the pump. How low do you think we could go?
My gosh. So on the national average, we’re about $3.27 and we’re kind of charging towards $3 there. Texas prices always that much lower. So they’re currently around $2.85.
But I think we’re going to have a charge at $2.50 here, which will mean in some parts of the state you’ll see prices much lower than that.
Now, we’re kind of in this midseason range, right? Usually we have the summer; we change over to the different types of oil into the winter.
It’s September; the travel season’s over. What’s happening demand-wise and current oil price-wise? We’re in a steady place right now, is that right? Or are things about to change up again?
In terms of gasoline prices, yeah, you’re exactly right that we’re switching to winter blend very soon here. And we’ve had kind of the death knell of summer driving season with Labor Day.
So you see demand coming off now. You see that switch to that cheaper winter blend. So prices would be moving seasonally lower anyway. They’re just being really kind of accelerated by this move that we’ve seen lowering oil prices.
