The GERM Report

-Heart of US refining sector expecting 110mph winds and a foot of rain.

-With natural gas in play, Germany steps in to Turkish-Greek disputes.

Crude oil prices were on the rise as dual storms in the Gulf of Mexico bared down on the large concentration of refineries and shale wells in PADD 3. US forecasters downgraded Marco to a little more than a passing storm, while Laura continues to pose a hurricane threat to the southern United States. Elsewhere, there are signs of progress on Sino-American trade issues, though at least some of the data indicate progress is more market-based than anything. In the continental economy, German is showing signs of recovery, and tensions emanating from the Mediterranean and Middle East could add to the premium.

Brent finished Monday up 1.75% after Marco sidelined hundreds of thousands of barrels in production from the US Gulf of Mexico. With more than three quarters of total US gulf production offline still on Tuesday, Brent was up another 1.1% as of 8 a.m. ET to hit $46.14 per barrel.

Marco weakened to a post-tropical cyclone and is expected to peter out quickly. Laura, however, is another story. The US National Hurricane Center expects Laura to strengthen to hurricane quickly. From Wednesday into the weekend, the storm is expected to dump as much as a foot of rain on parts of the Texas and Louisiana. Winds as strong as 110 miles per hour are expected in Beaumont, Texas, home to some of the larger refineries in the United States. Offshore, the Bureau of Safety and Environmental Enforcement reported that personnel were evacuated from 281 production platforms, about 45% of the total. Around 83%, or some 1.5 million barrels per day in oil, is offline because of the storm activity. Apart from flooding, strong winds may be problematic for regional refineries as winds as strong as 110 miles per hour are expected in Beaumont. These storms will remain the primary driver behind the price of oil this week. And expectations of another draw on US inventories could hold Brent above the $45 per barrel mark through the trading week.

A report emailed to The GERM Report from S&P Global Platts suggests PADD 3 isn’t out of the woods just yet.

“The 2020 Atlantic hurricane season, which has already produced 11 storms including three hurricanes, is forecast to result in 20 storms (nine hurricanes and four major ones),” it read. “It is expected to be higher than the average and has the potential to significantly disrupt production from the US Gulf of Mexico as well as imports, exports and refining capacity in the area.”

On trade issues influencing the broader market, and after US President Donald Trump initially balked on talks, Chinese Vice Premier Liu He spoke by phone early Tuesday with US Trade Representative Robert Lighthizer and US Treasury Secretary Steven Mnuchin on bilateral economic issues.

“The two sides conducted a constructive dialogue on such issues as strengthening bilateral coordination of macroeconomic policies and the implementation of the China-U.S. phase-one economic and trade agreement,” a statement from China’s official Xinhua News Agency read.

Bilateral trade issues had already threatened to dampen global economic growth before the pandemic and progress has sputtered for much of the year. China is far behind its goal of spending $26 billion on US oil and gas this year. Energy news agency Argus reports that Chinese imports of US crude oil averaged 863,000 bpd in July, up from the 143,000 bpd in June. It’s likely, however, that China was taking advantage of market factors rather than honoring its US trade commitments. Saudi Aramco had already raised its official selling price and cut loadings for some of its Asia-Pacific customers by June. Voluntary production restraint from the group collectively known as OPEC+ could also be limiting ordinary volumes from Europe to Asia.

The continental economy in Europe, meanwhile, looks to be improving. Second-quarter GDP for Germany came in better than expected at negative 9.7%. Economists at ING found that German business confidence was on the rise, though rebound was not the same as recovery. Germany’s economic strength, meanwhile, runs more or less parallel to its geopolitical influence and that resilience is now on display. German Foreign Minister Heiko Maas is stepping into the fray between Greece and Turkey over drilling rights in the Mediterranean. Ankara sees an opening amid waning US influence and chaos in the Middle East and North Africa to expand its reach beyond Anatolia, leaning on its strategic position between Asia and the European markets. With the gas-rich Mediterranean in play, Maas warned about adventurism in the region.

“The windows for dialog between Greece and Turkey must now be opened further and not closed,” he said in statement emailed to the Bloomberg news agency. “Instead of new provocations, we finally need steps toward an easing of tensions and to initiate direct discussions.”