Oil Market Evades Storm, but Prices Stay Firm

The oil and natural gas industries, as well as consumers, dodged a bullet.

With Hurricane Dean looking to push southward across the Yucatan Peninsula and then into south-central Mexico, U.S. oil and gas interests will have avoided a dangerous dance, as the storm will pack winds well over 100 mph when it hits the Mexican shoreline not once but twice.

The only real impact will likely be on Mexico's state oil company, Pemex, and its Cantarell field in the Bay of Campeche. Pemex said it is evacuating more than 13,000 workers from platforms that may be in harm's way, and that could reduce output by as much as 400,000 barrels of oil per day. The impact will be significant to Pemex, which has about 70% of its oil production coming from interests in the Gulf of Mexico.

However, from a U.S. perspective, the southerly path allows domestic production and drilling companies to exhale after holding their breath for nearly a week as Dean developed and intensified. Companies such as RoyalDutch Shell (RDS.A - commentary - Cramer's Take) and BP (BP - commentary - Cramer's Take) evacuated some nonessential personnel as a precaution, and Transocean (RIG - commentary - Cramer's Take) announced it would evacuate rigs in deeper waters ahead of the storm's potential impact.

Although modestly disrupting to Gulf activity, the production impact will be minimal: Less than 2% of Gulf of Mexico oil production could be offline for a couple of days and less than 1% of natural gas production. Field personnel will likely begin returning to Gulf of Mexico infrastructure later today or Tuesday.

Oil Challenges Remain

As Dean quickly becomes a memory for domestic oil and gas producers, oil and natural gas prices will likely give back gains from late last week. While that makes sense, there are still plenty of reasons to believe crude prices will remain relatively firm in the coming months.

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At time of publication, Edmonds had no positions in stocks mentioned, although holdings can change at any time.

Christopher Edmonds is managing principal at Energy Research & Capital Partners, an energy investment firm and an affiliate of FIG Partners. He is based in Atlanta. Under no circumstances does the information in this column represent a recommendation to buy or sell stocks. While Edmonds cannot provide investment advice or recommendations, he appreciates your feedback; click here to send him an email.