Irma at the moment a Category 5 Hurricane with movement west at 12 knots. Is expected to make landfall later this week on the U.S. Coast from Miami to Fort Lauderdale at the current track. There is also Disturbance 2 in the southwestern Gulf of Mexico which has a 50% chance of a Cyclone Formation in the next 48 hours and is expected to make landfall over portions of eastern Mexico. We also have Disturbance 1 lurking in the Atlantic that has a 60% chance of Cyclone Formation in 48 hours as well, with a brand area of low pressure located 1000 miles west-southwest of the Cabo Verde Islands and gradually getting more organized. We have the Energy Products trading sharply lower with concerns of Demand Destruction and the Crude Oil trading higher. The API data will be delayed due to the Labor Day holiday. Today’s reports are Factory Orders at 9:00 A.M. Central, Export Sales at 10:00 A.M., Dairy Products at 2:00 P.M. and Crop Progress at 3:00 P.M.
In the overnight electronic session the October contract is currently trading at 4792 which is 63 points higher. The trading range has been 4801 to 4715. We should see some wild movement in this active Hurricane Season and how it will affect Inventories and movement of Products.
On the Ethanol front a story by Michael Hirtzer and Chris Prentice of Reuters report that hundreds of gas stations in 38 states could sell a blend with higher Ethanol content, known as E-15, after the EPA said they could switch to winter blends two weeks earlier than normal. With the current crazy weather conditions we are experiencing in the lower 48 and better suited to deal with the likes of a storm like Harvey, after Katrina we learned a lesson, but we did not have the likes of Irma right behind it and other Disturbances as well. A top Ethanol Producer with Archer Daniels Midland Co. was quoted we will be forced to “manage through these conditions. In the overnight electronic session the October Ethanol posted a trade at 1.500 which is .006 of a cent higher. 1 contract traded and the market is currently showing 1 bid @ 1.486 and 1 offer @ 1.510 with Open Interest at 985 contracts.
On the Natural Gas front the market is joining in with the Products in the FREE for Fall ( no pun intended). We are in shoulder season and temperatures are cooler than the norms at this time of the season. In the overnight electronic session the October Natural Gas is currently trading at 3.025 which is 4 ½ cents lower. The trading range has been 3.059 to 3.013.
On the Corn front we had First Notice Day on all September Grains on Thursday August 31st so we will switch our focus to the December Corn contract. The Grain complex is trading mostly higher across the board with the exception of Rice that is which is down a ½ of a cent. We also have Export Inspections and Crop Progress today. The current weather is below normal temps and we could be talking early frosts that could spark a short covering rally. In the overnight electronic session the December Corn is currently trading at 358 ¼ which is 3 cents lower. The trading range has been 359 to 354 ¾.
— Daniel Flynn
The Energy Report: Stormy surges and rising geopolitical risk
Oil prices are on the rise as US refiners come back after Hurricane Harvey and a big jump in geo-political risk as North Korea unleashes an alleged hydrogen bomb. The oil industry must watch the weather again as Hurricane Irma has turned into a massive and dangerous category 5 storm. On top of that there are 2 other tropical disturbances that are also in play to potentially disrupt energy production and shipping of imports and exports in the Gulf of Mexico.
The U.S. refineries are coming back and believe it or not, so is oil production and gas production. Last week Valero Energy restarted two Galveston refineries and are now back to normal production rates. Other refineries in the Texas area are restating and should be back to normal in a matter of days. It is being reported that Flint Hills Resources and Citgo Petroleum are in restart but Exxon Mobil Beaumont, Texas refinery may take more time as flooding damaged a lot of its equipment. On top of that an oil field is contained by a levee that flood waters breached on Saturday afternoon leaking oil into the streets and a sheen of oil that will have to be cleaned up before a restart.
Yet just as the industry starts to recover more storms are going to create havoc. Hurricane Irma is getting most of the attention. This storm is a major threat but other storms may impact energy and lives as well. The National Hurricane Center is issuing advisories on Hurricane Irma, located a few hundred miles east of the Leeward Islands. Reuters reports that Hurricane Irma, a powerful Category 5 storm, plowed toward the Caribbean and the southern United States on Tuesday as islands in its path braced for possible life-threatening winds, storm surges and flooding.
Hurricane warnings and watches were in effect for parts of the Leeward Islands, the British and U.S. Virgin Islands and Puerto Rico, in preparation for a storm that was intensifying with 150 mph (240 kph) winds, the U.S. National Hurricane Center (NHC) said. “Dangerous Hurricane Irma heading for the Leeward Islands,” the hurricane center said. “Preparations should be rushed to completion as tropical storm-force winds are expected to arrive in the hurricane warning area by late Tuesday.”
But other storms we have to worry about as well. The NHC says that, “Showers and thunderstorms associated with a broad area of low pressure located about 1000 miles west-southwest of the Cabo Verde Islands are gradually becoming better organized. Satellite data indicate that this system is already producing winds near tropical storm force. There is a strong likelihood that a tropical depressionor tropical storm will form within the next few days while the disturbance moves west-northwestward at 10 to 15 mph over the tropical Atlantic Ocean.* Formation chance through 48 hours…medium…60 percent. Formation chance through 5 days…high…90 percent. A trough of low pressure located over the southwestern Gulf of Mexico is producing disorganized shower activity and a few squalls. Environmental conditions are marginally conducive for development, and this system could become a tropical depression during the next couple of days while it meanders over the southwestern Gulf of Mexico. Regardless of development, heavy rains associated with this disturbance are likely over portions of eastern Mexico during the remainder of the week. Formation chance through 48 hours…medium…50 percent. * Formation chance through 5 days…medium…60 percent.
The storms will play havoc with inventories. We expect to see draws of 3 million barrels in gas, distillates and gasoline. Runs will plummet by 10.
North Korea fears are boosting oil as well. The BBC reports that North Korean leader Kim Jong-un is “begging for war” with his latest and most powerful nuclear bomb test, the US envoy to the United Nations has said. Nikki Haley told an emergency meeting of the Security Council in New York that the U.S. did not want a war but its patience was “not unlimited”. The U.S. will table a new UN resolution shortly to toughen sanctions. However, Russian President Vladimir Putin on Tuesday called sanctions “useless, ineffective and exhausted”. China, the North’s main ally, has called for a return to negotiations and Switzerland has offered to mediate. Meanwhile South Korea’s navy carried out live-fire naval drills on Tuesday, warning that if the North provoked them “we will immediately hit back and bury them at sea”, reported Yonhap news agency. It comes a day after the South’s military simulated a missile attack on the North’s nuclear test site.
— Phil Flynn
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