Impact of Weather on Energy Futures

  1. 2021 likely to be an active hurricane season
  2. Atlantic Waters Warm, encouraging hurricanes
  3. Average hurricane season has 13 named tropical storms and 7 hurricanes
  4. Season 2020 had 30 named tropical cyclones.

 

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Alan Levine—Chairman, Powerhouse
(202) 333-5380

 

The Matrix

Weather is among the most important factors to consider when projecting possible petroleum price trajectories. In particular, the Hurricane Season of 2020 was notable in the extent to which it affected crude oil and natural gas production in the Gulf of Mexico. Hurricanes also affected demand. Powerhouse looks at highlights of the 2020 season in this week’s Energy Market Situation, Natural Gas (see below.)

It’s helpful to recall that “hurricane” is not a precise term. Weather watchers have categorized hurricanes by their wind speed.

Category 1 Sustained Winds 74–95 mph Some Damage
Category 2 Sustained Winds 96—110 mph Extensive Damage
Category 3 Sustained Winds 111-129 mph Devastating Damage
Category 4 Sustained Winds 130-156 mph Catastrophic Damage
Category 5 Sustained Winds 157 + mph Catastrophic Damage

It’s too early to estimate what the 2021 hurricane season will look like. There are, however, some observations that might be made. Colorado State University’s weather group notes there is a six-in-ten chance of another active season in 2021.

Weather conditions depend on several variables, some of which are long-term cycles. Among these drivers, two are particularly relevant. These are the “El Nino Southern Oscillation (ENSO,) and water temperature in the northern Atlantic Ocean.

The appearance of La Nina, El Nino’s counterpart, cooled Pacific waters last summer. This helps explain why we endured record levels of hurricanes. Weather models anticipate warming waters through the middle of 2021’s hurricane season, July, August and September. This suggests Pacific water temperatures could be warm enough to neutralize La Nina and slow hurricane formation.

Another factor relates to water warmth in the Atlantic Basin. Long-range temperature patterns show water temperatures above average. This shows as more hurricanes, more major hurricanes focused on a U.S. landing.

Each hurricane season produces, on average, 13 named tropical storms and 7 hurricanes.

 

Supply/Demand Balances

Supply/demand data in the United States for the week ended December 4, 2020, were released by the Energy Information Administration.

Total commercial stocks of petroleum rose by 19.9 million barrels during the week ended December 4, 2020.

Commercial crude oil supplies in the United States increased by 15.2 million barrels from the previous report week to 503.2 million barrels.

Crude oil inventory changes by PAD District:
PADD 1: Plus 0.1 million barrels to 10.6 million barrels
PADD 2: Down 0.2 million barrels to 146.7 million barrels
PADD 3: Plus 11.8 million barrels to 274.0 million barrels
PADD 4: Plus 0.2 million barrels to 24.2 million barrels
PADD 5: Plus 3.2 million barrels to 47.8 million barrels

Cushing, Oklahoma inventories were down by 1.4 million barrels from the previous report week to 58.2 million barrels.

Domestic crude oil production was unchanged from the previous report week at 11.1 million barrels daily.
Crude oil imports averaged 6.479 million barrels per day, a daily increase of 1.080 million barrels. Exports decreased 1,622,000 barrels daily to 1.834 million barrels per day.

Refineries used 79.9% of capacity, up 1.7% from the previous report week.

Crude oil inputs to refineries increased 424,000 barrels daily; there were 14.436 million barrels per day of crude oil run to facilities. Gross inputs, which include blending stocks, rose 129,000 barrels daily to 14.692 million barrels daily.

Total petroleum product inventories rose 4.7 million barrels from the previous report week.

Gasoline stocks increased 4.2 million barrels daily from the previous report week; total stocks are 237.9 million barrels.

Demand for gasoline fell 373,000 barrels per day to 7.600 million barrels per day.

Total product demand increased 67,000 barrels daily to 18.534 million barrels per day.

Distillate fuel oil stocks increased 5.2 million barrels from the previous report week; distillate stocks are at 151.1 million barrels. EIA reported national distillate demand at 3.389 million barrels per day during the report week, a decrease of 400,000 barrels daily.

Propane stocks decreased 4.1 million barrels from the previous report week; propane stocks are 87.6 million barrels. The report estimated current demand at 1.691 million barrels per day, an increase of 681,000 barrels daily from the previous report week.

 

Natural Gas

The 2020 Hurricane season has formally ended. Formally because the meteorologic community has agreed to a season from June 1 through November 30. Practically, hurricanes come when the conditions are right.

The statistics for the 2020 season are truly remarkable. This most active hurricane season in the Atlantic basin recorded 31 (sub) tropical cyclones. Thirty of them were strong enough to earn a name. The season was so intense that naming conventions required the use of Greek letters for the last eight systems of the year.

Hurricane Iota was the last event. It intensified to become a Category 5 storm. There were two Cat 5 hurricanes in November, the only time this has happened.

According to the EIA:

The net [natural gas] withdrawals from storage totaled 91 Bcf for the week ending December 4, compared with the five-year (2015–19) average net withdrawals of 61 Bcf and last year’s net withdrawals of 57 Bcf during the same week. Working natural gas stocks totaled 3,848 Bcf, which is 260 Bcf more than the five-year average and 309 Bcf more than last year at this time.

 

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