Monday, August 28, 2017

"Oil Stocks & Hurricane Harvey: It’s Complicated"

This was part of the point of our one sentence introduction to Friday's "As Harvey nears Texas, analysts highlight re/insurers risk of losses":
It used to be the hydrocarbon extractors in the Gulf that offered the best (most volatile) trading opportunities but with the advent of less conventional sources of oil and gas, and changes in infrastructure, the insurers and reinsurers are where the hot money herd has migrated....
And today's detail from Ben Levisohn at Barron's Stocks to Watch:

How will Hurricane Harvey impact oil explorers like ConocoPhillips, Marathon Oil, and EOG Resources? It's not as simple as it is for refiners.
We know refiners have gotten a boost from Hurricane Harvey because outages should raise prices for refined good like gasoline. Is what's good for refiners bad for producers?

Not necessarily, despite he fact that the Energy Select Sector ETF (XLE) has declined 0.6% to $62.62. Morgan Stanley's Benny Wong and team call the impact on oil prices and oil explorer "more complicated." They explain why:
 Near-term impact to oil price is likely supportive for price, as the negative US production outages reduce global supply, yet medium term the answer is more dependent on the balance between US refinery and upstream outages. Hurricane Harvey will effect US offshore production, which is known per history, yet also will effect US shale production, primarily Eagle ford, and crude transportation (imports and exports) which is newer vs. history and lies in path of the stalled storm. Approximately 10% or 150 Mbpd of US offshore production is currently shut-in (39 platforms) and activity has likely slowed to stopped in the Eagle Ford shale, which represents ~1.4 MMbpd of production. The effect to shale could linger given the extent and catastrophic level of forecasted flooding which interferes with shale logistics and activity....MORE