Hurricanes Katrina, Rita, And Harvey Tell Shale's Story -- Bloomberg -- August 28, 2017

This is why I love to blog. Earlier this afternoon I posted a graphic explaining why Venezuelan sanctions will have no effect on the price of WTI.

Now, we have an op-ed piece from Bloomberg explaining why Hurricane/Tropical Storm will have no/minimal effect on WTI (graphics appear to be missing in this Bloomberg op-ed as re-printed in Rigzone.

Even as they grapple with more existential problems (if they're in southern Texas or are worried about people who are), energy traders are also confronted with the fact that, by and large, the markets they deal in appear largely unperturbed.

Prices of gasoline and other refined products have jumped -- a logical outcome, given that about one-sixth of U.S. refining capacity has been shut down. Yet crude oil and natural gas prices were either flat or down on Monday morning.

This is in marked contrast to the situation 12 years ago. Natural gas illustrates the point. When Katrina and Rita hit the Gulf, natural gas prices spiked into double digits, versus today's price of just less than $3 per million BTU.

More striking, though, is the differing impacts on expectations, as expressed in the futures market then and now. Here is what happened in 2005: And here's how things have moved this month. Spot the difference:

The key factor here is the shale boom. In its early stages, it got added impetus from surging natural-gas prices, due to both the commodity supercycle in the decade before 2014 and disaster-related spikes such as those in the summer and fall of 2005.

You can see this in the dramatic shifts in where the U.S. gets its domestic natural gas supply:

The shift away from the hurricane-prone waters of the Gulf of Mexico means even a catastrophic event like Harvey now has little impact on pricing. Indeed, even onshore production in Texas and Louisiana has declined as a share of domestic U.S. natural-gas production in recent years as the first wave of the shale boom has passed and growth has shifted elsewhere, particularly Appalachia.

If anything, Harvey is bearish for natural gas because of the disruption to local demand, which hasn't declined in importance over the past decade:

In a report published on Friday, ahead of the worst of the storm, Societe Generale analyst Breanne Dougherty estimated Harvey might subdue demand for natural gas by 1.5-2 billion cubic feet per day, roughly in line with estimates of the amount of supply taken off-line.

Besides direct usage, natural gas accounts for about 45 percent of Texas' electricity generation.

As of Monday morning, with hundreds of thousands of customers having lost power across the Gulf coast region, day-ahead peak power prices for Houston were down by a third compared to the middle of last week, hitting their lowest level since mid-March.

Much more at the link.

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Tropical Storm Harvey To Hang Around All Week

Although it will move inland (eventually), tropical storm Harvey is still going to be Texas through Thursday later this week, and possibly still in the state on Friday, before it finally moves northeast to Arkansas.

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Amazon-Whole Foods

My wife and I stopped at the local Whole Foods store earlier today.

One word: underwhelmed.

Not one mention of the historic event.

Not one sign of any "sale."

The store was practically empty; certainly there were more employees (most of them were stocking shelves) than customers.

Later I spoke to our adult daughter about Whole Foods. She says that it's her observation that the folks that shop at the Whole Foods in our neighborhood are vegans.

Underwhelmed.

It will be interesting to follow the Amazon-Whole Foods story but I can guarantee you that based on what I saw today, other grocers have nothing to worry about. The brand items and line items that Whole Foods has are completely different from the brands of which I am familiar.

But clearly, Whole Foods serves a different niche than mainstream grocers and unless Whole Foods changes it products lines, the twain shall never meet. 

Produce? No difference from what other stores offer. 

Later: one day after writing the note above, this reporter in New Jersey visited a Whole Foods store in his neighborhood and was as underwhelmed as I was.