On Friday Tropical Storm Ernesto still looked very much like a viable threat to Gulf of Mexico (GOM) production, and cash prices were up at most points, although not by large amounts. The weekend passes. Traders return to their offices Monday to find Ernesto getting sapped of energy over Cuba and now projected to head north through eastern Florida and then farther up the East Coast.
Predictably, a market that apparently has dodged the Ernesto bullet “celebrated” with big-time price losses Monday. Virtually all were substantial in hitting about 55 cents or more, and were fairly uniform through various geographic areas. Henry Hub saw the day’s biggest decline that fell just short of a dollar. The Hub average of about $6.50 left it trading only 2-3 pennies above September futures, which settled sown 68.5 cents at $6.472 Monday. Henry had traded at a premium of nearly 35 cents over the screen Friday.
A quote reflecting a drop of only 15 cents at the Florida citygate was a market aberration, and likely reflected Florida Gas Transmission’s warning market-area customers of a potential Overage Alert Day being declared Tuesday. “Gas demand in Florida often significantly increases when the forecasted path of a hurricane crosses over a part” of the state, the pipeline said.
Besides the massive softness that Ernesto’s likely change of path visited upon daily prices, it had a similar impact on the developing bidweek. A marketer reported trading the Chicago citygate for September in the mid $6.30s Monday. Based on a Friday Chicago basis quote of minus 23 cents and the screen being much higher for much of the day before retreating in the afternoon, that meant the citygate had fallen from the $6.90s or greater prior to the weekend.
The marketer said she was seeing “not a lot of [bidweek] activity” Monday, but then clarified that as a likely personal perception because she had only a little September gas left to sell.
The lack of new storm threats, the huge screen weakness Monday and the fact that substantial cooling load is somewhat scarce outside the southern tier of states make it a near-certainty that cash prices will continue to fall Tuesday. Even the Midcontinent, which had still been sizzling with highs around 100 or more last week, has cooled off. Oklahoma City was predicted to see highs in the mid 80s Monday and Tuesday.
Texas remains a hotbed, so to speak, of air conditioning demand, although highs have backed off the 100-degrees-plus levels that were common in recent weeks. A Houston-based source remarked of the Lone Star state’s heat and humidity: “It’s not just dog days down here; it’s filthy mongrel days.”
Ernesto briefly reached hurricane status Sunday, but was barely hanging on to its remaining tropical storm classification Monday afternoon.
Producers said they may be returning nonessential personnel Tuesday to offshore rigs and platforms if Ernesto continues to weaken and move north.. They had been evacuated over the weekend as a precautionary measure. Ernesto was moving across southeastern Cuba on Monday, bringing rains and heavy flooding. A hurricane watch was in effect for the southern peninsula of Florida.
Tracking models by the National Hurricane Center (NHC) suggested Ernesto will continue to move northward once it passes Cuba. The NHC’s five-day estimate showed Ernesto moving northward into the Florida Straits and intensifying into a small hurricane before making landfall at Florida’s southern tip on Wednesday. It then is tracked northward over Lake Okeechobee in Florida as a hurricane before heading northeastward and along the Atlantic Coast early on Thursday.
The expected path had Ernesto making landfall again early Thursday afternoon in South Carolina and continuing onward through North Carolina, Virginia and Pennsylvania. The accompanying heavy rains and possible power outages would have the effect of stifling any potential power generation load arising from hot weather in the Mid-Atlantic and lower Northeast markets late this week.
Over the weekend, many of the largest producers in the GOM evacuated only nonessential workers, and there were no production shut-ins. Chevron Corp., which had evacuated about 500 nonessential workers over the weekend, said Monday it may begin returning its staff early Tuesday.
Other producers were still taking a wait-and-see attitude. Over the weekend, a Houston-based spokesperson said Shell Exploration & Production moved 110 personnel who were “nonessential to producing or drilling operations.” At ConocoPhillips, about 40 nonessential personnel were evacuated from the company’s Green Canyon and Garden Banks facilities. BP plc and Royal Dutch Shell plc also had evacuated nonessential workers.
According to the NHC, a hurricane watch remained in effect for all of the Florida Keys, from Ocean Reef to the Dry Tortugas. A hurricane watch also was in effect for Andros Island in the northwestern Bahamas. “Additional hurricane watches may be required for portions of the Florida peninsula later [Monday],” the center reported.
Meteorologist Jeff Masters of Weather Underground said Monday that Ernesto was “struggling to hold his eye together” as it was moving over Cuba. A Hurricane Hunter aircraft found that the eye was “substantially tilted, with the calm at the surface about 25 miles south of the calm at the 10,000-foot flight level. The plane could find maximum winds of only 35 mph during that two-hour period, so Ernesto will probably be downgraded to a tropical storm…The center of the storm is just south of some very mountainous terrain, and this is significantly disrupting Ernesto.”
At 5 p.m. EDT Monday the center of Ernesto was about 60 miles east of Camaguey, Cuba, and was moving to the northwest at nearly 13 mph, the NHC said. The storm was expected to emerge off the north coast of Cuba Monday evening. Maximum sustained winds were around 40 mph, just above the threshold speed needed to remain a tropical storm.
Debby — remember Tropical Storm Debby, downrated to a tropical depression by Sunday? — remained far out in the Atlantic and was losing tropical characteristics, the NHC said in its final Debby advisory issued Sunday afternoon.
GOM energy interests shouldn’t get complacent about Ernesto apparently giving them a break, warns Weather 2000. In a Monday advisory, the consulting firm said its research from last week still maintains 60% odds that Ernesto will eventually enter the Gulf of Mexico at some point, (i.e., breaking 81 degrees W longitude).
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