Already in the aftermath of Hurricane Irma, the market is looking ahead to the road to normal. The focus in oil seems to be shifting away from demand destruction to the surge in demand we will get when we start to rebuild. U.S. refineries are coming back on line from Hurricane Harvey to only 6% off line, down from over 25% after the storm. Early reports say that Hurricane Irma’s impact on Florida was not as bad as it could have been and so the market can look ahead.
Natural gas demand may take the biggest hit as Hurricane Irma knocked out power to more than 3 million homes and businesses and Reuters reports that full restoration of service could take weeks. Yet the damage to buildings actually will be bullish for oil and oil product demand in the rebuilding phase. While we are not all clear as the Atlantic is still active from a weather standpoint, the market will start focusing on the rebuilding with strong demand for many petroleum products.
Oil prices are also getting support from a move by Saudi Arabian Energy Minister Khalid al-Falih to extend the oil production cut this past March when the deal expires. He met with Venezuela and Kazakh this weekend and still has to bring on board Russia who has so far balked at an extension of cuts. Yet if the rest of the OPEC cartel agrees, the Russians will most likely get on board.
Gasoline prices may start to level out as refiners come back on line. We may start to see a reversal on the Brent/WTI spread and oil up versus products down.