Why Hurricane Idalia won't move oil prices much - Yahoo Finance

Why Hurricane Idalia won't move oil prices much

As Floridians prepare for Hurricane Idalia, Lipow Oil Associates President Andrew Lipow joins Yahoo Finance Live to discuss the impact of the hurricane on oil prices.

Lipow says, “the impact of Hurricane Idalia on the energy infrastructure is actually very small. The majority of natural gas and oil production, if you will, is to the west of Mobile, Alabama.” Lipow explains what he is “really looking for is the supply disruptions coming from tanker deliveries of gasoline and diesel being delayed into the port of Tampa, as well as along the Florida panhandle from Pensacola over to Panama City.”

“For the global oil market,” Lipow says, we’ve been focusing on “the production cuts that we’ve been seeing out of OPEC+, specifically Saudi Arabia, as they try to get the price back towards $90 a barrel for Brent crude oil. And we’ve seen Saudi Arabia impose voluntary production cuts,” that Lipow expects will “continue through October and perhaps through the end of the year.”

Lipow notes that “the oil market has been… disappointed with the re-opening of the Chinese economy and the rate of growth that we’re seeing in oil demand.” Chinese oil demand in the second quarter was “very robust” at "16 million barrels a day… but we expect that demand is going to start to slack in the third and fourth quarter,” Lipow says.

Video Transcript

AKIKO FUJITA: Andy, what's the immediate impact you're watching? And how significant is the disruption likely to be if we do, in fact, see this hurricane intensified to a category 3?

ANDREW LIPOW: Well, thank you very much for having me. I think the impact of Hurricane Idalia on the energy infrastructure is actually very small. The majority of natural gas and oil production, if you will, is to the West of Mobile, Alabama. So if you would draw a North-South line through Alabama, the impacts are going to really be to the East side of that. Florida produces only 2,000 barrels a day of crude oil, while the nation is producing 12.8 million barrels a day.

What I'm really looking for is the supply disruptions coming from tanker deliveries of gasoline and diesel being delayed into the Port of Tampa as well as along the Florida panhandle from Pensacola over to Panama City.

SEANA SMITH: And if we do see that, what could that potentially do then to prices?

ANDREW LIPOW: Well, in the local Florida area, we would expect that prices go up. And the biggest concern is flooding and power outages of these terminals that are against the Gulf of Mexico. And should the storm surge come and impact them, then you can see a more difficult situation as gasoline supplies into the panhandle have to be trucked in.

AKIKO FUJITA: Andy, as you look at this as one factor in oil prices and where they are moving right now, how significant is sort of looking-- when you look at the global factors right now-- I mean, how big of a mover is this likely to be in the grand scheme of things?

ANDREW LIPOW: Well, the storm is actually going to be a very small impact on the overall oil market. For the global oil market, what we're really been focusing on is the production cuts that we've been seeing out of OPEC+ specifically Saudi Arabia as they try to get the price back towards $90 a barrel for Brent crude oil. And we've seen Saudi Arabia impose voluntary production cuts that I expect that are going to continue through October and perhaps through the end of the year.

SEANA SMITH: Andy, how do you see the demand picture globally factoring in China, the slowing-- very slow recovery that we're seeing there, how that could potentially, I guess, keep oil prices in check? Because we kind of have this push-pull going on between demand out there, falling demand and then the supply picture and what that could look like.

ANDREW LIPOW: Well, the oil market has been, frankly, disappointed with the reopening of the Chinese economy and the rate of growth that we're seeing in oil demand. In the second quarter, Chinese oil demand was still a very robust 16 million barrels a day, second only to the United States. But we expect that demand is going to start to slacken in the third and fourth quarter.

And that is why we're seeing Saudi Arabia take these preemptive measures in order to get the oil market back in balance. I should also add that while OPEC+ has been trying to cut production, members of OPEC who are not subject to the quota like Libya, Iran, and Venezuela, they slowly but surely have been increasing their oil production. And that's really thrown a monkey wrench into Saudi Arabia's plans.

AKIKO FUJITA: So when you consider that OPEC+ has cut roughly 5 million barrels a day since October of last year, you consider the softening demand out of China, what are those additional cuts you alluded to earlier? What does that look like?

ANDREW LIPOW: Well, when we saw the OPEC+ production cuts, of course, that was from their quota levels, which were in excess of what they were actually producing. So in reality, the OPEC+ production cut of a headline of 5 million barrels per day only translated into about 2.7 million barrels a day, offset by what we saw come out of Iran and Venezuela and Libya.

And that is really the difficulty that OPEC+ is having, that they haven't cut as much as they've announced. At the same time, the International Energy Agency is predicting a record oil demand this year, up 2.4 million barrels a day from last year, but a much slower growth going into 2024 of only 1 million barrels a day. And fortuitously, the US is supplying a significant amount of that increased oil demand through our increased production.