Hurricane Isaias Poses Strong Threat to an Already Pressured Energy Trade

SPEAKER_1 (0:00)

For more, let's bring in our panel. Joining us today, Jake Hanley, the Chief Growth Officer and Director of Investments at Tucreum ETFs, and Ellen Wald, PhD and author of Saudi Ink and president at Transversal Consulting. Great to have you both with us. Ellen, let's start with you and this hurricane threat in the Gulf, where we've got roughly 2 million barrels of day of refining capacity that are potentially in the path of this storm. How significant of a risk is this posing to gas and diesel prices?

Ellen Wald (0:29)

So this is a pretty significant risk because we're in a position where we've basically been running our refineries flat out since this crisis started. And some refineries are even delaying maintenance. There's some pretty major refineries there. And it could be that they don't have any damage, that it passes by and nothing is really affected. Although even some flooding damage could pose problems to transportation, to just getting that gasoline where it needs to go. But because we're in such a tight situation, any kind of disruption is going to play out across the market. And we would see price spikes. Yes, they'd be temporary because the damage will be fixed. It will be reversed. They will come back online. But this is just not a good time for a hurricane to come right in the path of major refining centers.

SPEAKER_1 (1:20)

And Jake, Ellen's talking about this already tight fuel inventory. And we've got a gasoline and diesel supplies currently at 12-year lows right now.

How much more vulnerable does this make the market to even a temporary refinery disruption?

Jake Hanley (1:36)

Oh, I mean, incredibly vulnerable. I mean, you don't want to call it a perfect storm, but it is a storm at the perfect time, you know, or the worst time, however you want to phrase it. I mean, you know, you look across the globe right now. I think Reuters puts us at about a 9% of global refining capacity is offline because of the wars in Russia, Ukraine, as well, of course, in the Middle East. And so another 2 million barrels a day in refining capacity potentially offline for an extended period of time. Well, that's another 2% or so of global refining capacity. So yeah, this is not coming at a good time.

SPEAKER_1 (2:16)

And Ellen, we're talking about a gas and diesel here, but in terms of crude and the hurricane risk there, is there also a risk here?

Ellen Wald (2:25)

I would say that there is somewhat, there's a potential for risk. Always when there's a hurricane in the Gulf, you see big oil producers out there taking precautions, evacuating platforms that could potentially be in the path of a hurricane or tropical storm. It's very important to protect the personnel who live there. I don't think at this point we're seeing any of these evacuations impact actual production, but the storm is still developing and it really could impact, it could impact production if it gets stronger or depending where the path goes or if depending on how oil companies choose to take precautions. Some of these platforms could be floating platforms and could be moved away, which would certainly prevent them from being damaged, but we could decrease oil production in the Gulf of Mexico for a period of time, and we're at a point where we do really need that production, we need that oil. Yes, the biggest backlog here is in refining, but any additional hit to crude oil supplies is going to be reflected in the market.

SPEAKER_1 (3:32)

Jake, we just got this agreement for the emergency release of oil last week, but then we had Saudi Aramco come out and say that rebuilding of these global stockpiles could take as much as two years. What are you seeing and what are your outlook here for oil prices going forward? I mean, could we see them stay structurally elevated even after we get through this immediate supply crisis?

Jake Hanley (3:57)

Yeah, we certainly could see them elevated structurally. I would say it might take two years to bring refining capacity back up to normal and for sovereign nations who are releasing petroleum out of their supplies to rebuild those supplies in the distillates as well, which is a big story. But even if it takes two years, I would say that's not necessarily a new catalyst to help push prices higher, but would rather be providing somewhat of a floor of support underneath prices to help keep them elevated for an extended period of time. But I just point out too that that conversation of rebuilding and getting back to normal, I think that's a little far looking. We're behind that story right now as the wars continue to be the major drivers.