Michael Cohen is head of energy markets research at Barclays. He is responsible for the firm’s research covering developments in North American energy markets as well as its oil and natural gas forecasts. Prior to Cohen’s role at Barclays, he worked as a senior member of the Oil Industries and Markets division at the International Energy Agency and as an economist at the Energy Information Administration. ETF.com spoke with him recently about the latest developments in the oil and natural gas markets.
ETF.com: Do you think the impact from Hurricane Harvey on the oil industry will be long-lasting?
Michael Cohen: This is not a problem that's going to be easily solved. Refining capacity continues to be offline throughout the region. The biggest issue is that when you have saltwater flooding, you have problems restarting pumps and getting most of the water out.
Then you have to run leak detection surveys on all the pipelines in the area. Even though a refinery may be up and running, you may have production that’s not yet moving because the pipeline is not fully up and running.
Seawater leaves a residue. It can ruin the motors and other devices. Sometimes water can damage insulation as well. There can be a lengthy dry-out procedure. Between that and having to clean out all the debris that’s in a refinery or another facility, it can be weeks, if not months, where these refineries are not up and running at their full capacity.
From that perspective, we're not anywhere near out of the woods yet. The impacts are going to be felt throughout the coming month and the coming quarter.
ETF.com: It looks like the biggest impact from the hurricane has been on the refining side. Oil prices remain in their trading range even with the storm. Do you think, ultimately, oil will break out above $50 or below $40?
Cohen: The odds are more in favor of a breakout above $50, given the broader market dynamic, which is that global supply and global demand are moving into deficits in the third and fourth quarter.
The deficit that you've got in coming quarters, coupled with the geopolitical risk associated with what's going on in Venezuela, makes our bias skew to the upside when we look at prices for the balance of this year.
ETF.com: Do you think U.S. production has a shot to reach a new record high this year?
Cohen: We have it getting almost to 9.8 million to 9.9 million barrels per day by the end of the year, which is a record. Generally, we still see a very strong production picture. The hurricane and its associated effect may hinder that, but I don't think we're going to see permanent damage in offshore facilities.
It's the onshore facilities, especially shale facilities, that are the ones I'm most concerned about. If companies can't get out and drill and complete wells, you may not have an immediate production impact, but three or four months down the road, it means production may be 100,000 or 200,000 barrels per day less than what you’d have expected otherwise.