Hurricane Helene: What Investors Need To Know

Oil is desperately hanging on to $70/bbl, and some harder days may be ahead now that the tailwinds from the summer driving season are well behind us. 

So brace yourself, because there are a string of bearish forces that will be exerting pressure on oil prices. I know, I know, at this point it seems as if the oil bulls just can’t catch a break. 

Hope is not all lost, mind you. 

After all, Q4 is projected to be incredibly tight for the supply/demand balance, which is why OPEC+ was even considering backing off some of its production cuts by the end of the year. 

Unfortunately, anyone with that on their bingo card might be a little disappointed when those plans to bring more supply to market fall through. If you think the Saudis will be willing to cut output when prices are $70 per barrel or less, guess again.

However, first the oil bulls have to survive a few more weeks and months without pulling out all of their hair.

Hurricane Helene: What Investors Need to Know

By the time you read this, we may know the fate of Invest 97L. It’s an area of low pressure currently located in the northwestern Caribbean Sea that is expected to become a tropical depression sometime soon. 

Under current conditions, Invest 97L will first turn into a tropical storm, then into Hurricane Helene and make its way into the Gulf of Mexico.

I know what you’re thinking, “Isn’t a Hurricane wildly bullish for oil prices?” 

Well, the answer to that is yes AND no.

Some of you might remember when the National Oceanic and Atmospheric Administration (NOAA) reported that an above-normal Atlantic hurricane season was coming this year. 

However, the impact of a particular hurricane is more than simply its intensity. The path of the storm plays an even greater role on what the fallout will be. 

If you recall the paths of Hurricanes Rita and Katrina, both slammed into an area where a ton of our oil and gas infrastructure was located; more than 60 million barrels of oil output was shut-in during the 2005 hurricane season. 

We’ve seen before that most of our offshore oil and gas platforms are located between Houston, Texas, and Mobile, Alabama:

Any significant disruption in output from these platforms would give a boost to crude prices. 

However, that doesn’t appear to be where the soon-to-be Hurricane Helene is heading… which brings us to the bearish impacts that a hurricane can have. 

Assuming meteorologists are correct in their projections, Tropical Storm Helene will likely evolve into a Hurricane by Wednesday. 

Looking at current models, the hurricane will grow into a Category 3 storm and veer away from those critical platforms and refineries. In fact, if the models hold true, the storm’s path will take it up through Florida and smash its way through Georgia. 

Here’s how things are expected to go:

While we’ll still see oil companies take precautions and evacuate personnel from their offshore platforms, the real disruption could take place via demand destruction.

So, rather than shutting-in refinery and production operations, this path would indicate we’re more likely to see consumption patterns affected. When hurricanes batter those East Coast states, we typically see price spikes for fuel, not crude oil.   

In other words, it’s more likely the bears will stay in the driver’s seat in the short term. Thing is, they may be a little too blinded by their pessimism and get blindsided later on.

We’ll talk more on that next time.