Hurricane Season: Where to Place Your Energy Bets
US crude oil
On September 7, 2017, US crude oil (USO) (UCO) October futures fell 0.1% and closed at $49.09 per barrel. However, with most of the refineries coming online in the Gulf Coast after Hurricane Harvey, US crude oil prices rose 3.9% on August 31–September 7, 2017.
Interested in USO? Don't miss the next report.
Receive e-mail alerts for new research on USO
In the seven calendar days to September 7, 2017, the S&P 500 Index (SPY) and the Dow Jones Industrial Average Index (DIA) fell 0.3% and 0.7%, respectively. US crude oil prices outperformed these equity indexes, which we’ll discuss in Part 2.
Gasoline (UGA) October futures fell 6.6% in the trailing week. The unwinding of trades buying gasoline futures and selling crude oil futures—crack spread trades—in the aftermath of Hurricane Harvey could have been the catalyst. Hurricane Irma could hit Florida on September 11, 2017. Gasoline transportation to Florida goes through the ports at Jacksonville, Port Canaveral, Miami, Port Everglades, and Port Manatee. Hurricane Irma could halt the operations at these ports, which would add more downside to gasoline prices due to the potential supply buildup.
US commercial crude oil inventories rose by 4.6 MMbbls (million barrels)—0.5 MMbbls above the market’s expectations in the week ending September 1, 2017. It was the first rise after falling for nine consecutive weeks. Although US crude oil production fell by 749 thousand barrels per day during the same week, the halt in Gulf Coast refinery operations due to Hurricane Harvey could be behind the rising inventories. The EIA (U.S. Energy Information Administration) reported the data on September 7, 2017.
On September 7, 2017, US natural gas (UNG) (BOIL) October futures fell 0.6% and closed at $2.98 per MMBtu (million British thermal units). On the same day, based on the EIA’s report, natural gas inventories rose by 65 Bcf (billion cubic feet)—2 Bcf more than the market’s expectations for the week ending September 1, 2017. More importantly, inventories were 0.5% above their five-year average—compared to 0.3% the previous week. It could be responsible for the fall in natural gas prices on September 7, 2017. In the trailing week, natural gas prices fell 1.9%.
Like Hurricane Harvey, Hurricane Irma could result in milder weather for some parts of the US. Milder weather could have a negative impact on natural gas prices.