Gas prices are down, but tropical activity in the gulf could shake that up

Meanwhile demand for natural gas is also high, but US production is up as well.

By Matt SmithAugust 28, 2023 2:24 pm,

After months of climbing gas prices, we’re finally seeing a little relief right here at the end of the summer just before Labor Day. But as hurricane season moves into its peak, could we see new storms shake up that downward trend? 

Matt Smith, energy analyst for Kpler, spoke with the Standard about how markets are moving and what to expect as hurricane season ramps up. Listen to the interview above or read the transcript below.

This transcript has been edited lightly for clarity:

Texas Standard: So what’s the deal with gasoline prices? We’ve seen them sort of jump over the summer, but now sliding back just a bit. Should we expect this to continue?

Matt Smith: Hopefully so. That is the trend in Texas right now.

We’ve seen this gradual move lower to this current level of around $3.35 a gallon after we popped in July up to $3.45 – we were up sort of $0.35. So it is the seasonal trend for prices to move lower from here as we switch to cheaper winter blend gasoline, but the rise in oil prices through July from $70 to $80 – that was the pop that caused us to get here.

Hopefully as long as oil prices remain around $80, we should see a gradual descent from here.

Well, do you have any reason to suspect that those oil prices will be going up or down in the next month or two? I mean, what are you looking at?

They’re always choppy, right? But there seems to be a bit of a stalemate in the oil market right now, whereas on one side, you have a lot of concerns about the Chinese economy. So that’s weighing on prices.

Well, on the flip side, you have OPEC+ production cuts to Saudi Arabia, really cutting exports to try and support prices. So they’re basically at a stalemate here.

I know there’s a bit of a lag in terms of what we see at the pump versus what we hear about the price of oil. But here we are coming up on two weeks away from the peak of the Atlantic hurricane season. We’re looking at this nastiness down in the Gulf of Mexico right now. Is it possible that gasoline prices could begin to skyrocket if we see a lot of hurricane activity and disruption there? I mean, even if you have something in the region, you’re going to have producers and certainly refiners taking action to sort of slow down production or at least do take steps that, you know, to protect their infrastructure. 

Yeah, absolutely.

So right now, we’ve actually got two tropical disturbances, the one that you mentioned there. You know, we have also Hurricane Franklin in the Atlantic, but that’s set to peel up the Eastern seaboard and not make landfall, so that’s okay.

But Tropical Storm Idalia is close to Cuba and is set to enter the Gulf of Mexico and ramp up to hurricane status. But that’s said to make landfall in Florida by Wednesday. But neither of those storms, because of where they’re making landfall or not, are not impacting energy flows.

But to your point there, if we see a tropical storm or hurricane heading towards Texas or Louisiana, that’s a different story because, you know, it’s more likely to cause gasoline prices to spike given the possibility of knocking out refining capacity in sort of Texas or Louisiana. Whereas if the storm is further east – sort of Louisiana/Alabama way – it is more bullish for oil prices because it could impact Gulf of Mexico oil production.

I have to ask you about natural gas, a huge component in the production of electricity for which there’s a lot of demand right now with temperatures where they are. What are you hearing on the natural gas front?

Well, just taking a step back in terms of that Henry Hub – that U.S. benchmark price – you know, it’s remained below $3 in MMBtu on a U.S. basis simply because even though demand has been strong, we’re seeing record production in the U.S. and so storage is plentiful with 20% higher in storage versus last year and up 10% versus the five year average.

But as for Texas, as you mentioned there, natural gas has really stepped up this summer amid the record demand levels. So when there has been a lull in wind or solar power, there’s been more than enough natural gas capacity to meet demand. So it’s accounted for close to 70% of the generation mix at times when typically it’s normal, normally below 50%.

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