Flood Insurance Program Will Swell But Not Breach

Congress will reauthorize and revamp the National Flood Insurance Program before it expires at the end of September. Lawmakers are in no mood to let the program lapse in the wake of Hurricane Harvey. What’s less certain is just how extensive those reforms will be.

The 49-year-old Federal Emergency Management Agency program enables property owners in flood-prone areas to purchase flood insurance that is administered and backed by the federal government. Local governments must adopt and enforce floodplain management plans for their communities to be eligible. Continue reading “Flood Insurance Program Will Swell But Not Breach”

Hurricane Harvey Wallops the Energy Industry

The rain is still falling along the Gulf Coast and the flood waters are still rising, but it’s already clear that Hurricane Harvey has crippled the region’s energy infrastructure. As I wrote last week, many of the country’s oil refineries are located along the coasts of Texas and Louisiana. The latest reports indicate that more than 10% of U.S. refining capacity is now offline because of flooding and closures of shipping channels, roads and railways.

Retail gasoline prices are already starting to show the effects of refinery outages. According to AAA, the nation’s average price for regular unleaded now stands at $2.38 per gallon, up 4 cents from a week ago. Gasoline futures contracts are showing even steeper gains, signaling that drivers can expect prices at the gas station to keep rising in the next few days.

Jason Schenker, chief economist at Austin, Texas-based Prestige Economics, thinks the Gulf Coast region and the Northeast are especially likely to see prices jump, since much of the Eastern Seaboard depends on fuel refined along the Gulf. The effect on the West Coast should be muted. All told, it could be a “matter of weeks” before refineries are operating normally, he adds.

The only good news for the region’s energy industry: Refinery damages seem to be moderate. Jenna Delaney, senior oil analyst at PIRA Energy, an analytics unit of S&P Global Platts, said there aren’t reports of “anything particularly severe” at Gulf Coast refineries yet. The challenge is one of logistics more than repairs, she says. As long as key shipping routes, such as the Houston Ship Channel and the Port of Lake Charles in Louisiana, are closed, refineries can neither receive crude oil shipments nor send out refined fuels. Harvey must exit the Gulf and local officials need to assess the damage before establishing a timeline for reopening key waterways, she says.

Refiners not affected by the storm stand to benefit in the short term from the widening gap between the price of the crude oil they buy and the price of the gasoline and other fuels they sell. Benchmark U.S. crude is down since Harvey formed last week, recently trading at $46 per barrel on expectations that refinery closures will depress oil demand. Nymex-traded gasoline futures, meanwhile, have risen from less than $1.60 per gallon to $1.75 per gallon.

Prestige Economics’ Jason Schenker reckons that the price gap won’t last long. Once all refineries are operating normally again, they’ll be heavy buyers of crude, which should be bullish for oil prices while increasing gasoline supplies. But that probably won’t happen soon enough to avoid a noticeable price increase for folks driving this Labor Day weekend. The national average gas price, now at $2.38 per gallon, could flirt with $2.50 per gallon during the long weekend.

What Hurricane Harvey Means For Gas Prices

Residents living along the western Gulf of Mexico are no doubt carefully monitoring Hurricane Harvey, which is forecast to come ashore somewhere along the Texas coast Friday with flooding rains, powerful winds and damaging storm surges. It’s a dangerous situation for a region that hasn’t seen a hurricane since Ike in 2008.

Motorists throughout the U.S. might want to keep an eye on the storm’s impact, too. Why? Because the western Gulf is home to almost half of the country’s oil refining capacity. If flooding causes power outages or otherwise hobbles refineries, the production of gasoline and other fuels will take a significant hit.

The waters of the Gulf also yield a significant amount of the nation’s crude oil. According to the Department of Energy, oil platforms in federally owned waters of the Gulf of Mexico produced 18% of total oil output in May, the most recent month for which data is available. And some energy companies are already announcing production shut-ins as they evacuate crews from offshore oil platforms in advance of the approaching storm.

So what effects should we expect Harvey to have on energy production and prices?

Odds are any reduction in oil output should be modest, since the Gulf is a medium-size oil producing region, and since not all of its production will be shut down by the storm.

But refining is another story. Many of the nation’s biggest refineries are clustered along the Texas and Louisiana coasts, and thus are vulnerable to severe weather. Combined, they accounted for 47% of the nation’s refining capacity in May, according to DOE data.

Energy markets are already reflecting the likely impacts. On Thursday, crude oil futures traded lower, but gasoline futures were up sharply. Given the expectation that refinery closures will lessen the demand for crude oil and the supply of gas, that makes sense.

The loss of refining capacity, if prolonged, would come at a bad time for drivers. The Labor Day long weekend, often thought of as the unofficial end of summer when Americans hit the road for one last vacation, is little more than a week away. Retail gasoline prices often tick up during busy holiday weekends simply because demand rises. Add a kink in the supply chain, and the price bump could be more significant this year.

There’s no reason to fear shortages or major price spikes. Stockpiles of both crude oil and gasoline are ample, and it’s routine for energy companies to import additional refined fuel from abroad during storms. Tankers that have to stay clear of Gulf ports can land their cargoes elsewhere. But those work-around measures add cost. Regular-grade gasoline is currently averaging $2.35 per gallon nationwide, according to AAA. If Harvey knocks a significant number of refineries off-line, I wouldn’t be surprised to see the average price rise by a dime per gallon or more in coming days. Increases in the immediate Gulf Coast area could be more noticeable.

How long those price increases last depends on how extensive the storm damage is. Given current forecasts that Harvey might linger over Texas for several days, the chances for extremely heavy rain and flooding are high. If refineries take weeks to restart operations rather than days, the impact at the gas station could last well into September. In any event, now seems like a good time to fill the tank if you’re running low.

Of course, paying a bit more at the pump isn’t a great hardship for most of us. Folks who are in the path of this rapidly intensifying storm have much bigger worries. To all of our readers on and around the Gulf Coast: Good luck and stay safe.

Afghanistan: Donald Trump Continues America’s Longest War

President Trump’s plan to send thousands more U.S. troops to Afghanistan and emphasize “killing terrorists” over “nation building” put to rest any notion that he intends to wind down America’s longest war.

Trump was short on detail during his first prime-time speech since addressing Congress in February. He didn’t say how many soldiers will join the 8,400-strong U.S. force already in Afghanistan, leaving that specific for the Pentagon to sort out. Nor did he elaborate on the most provocative component of his new strategy: Putting more pressure on Pakistan to stop harboring the Taliban.  

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2018 elections could become a GOP family feud

Look for Republican incumbents on Capitol Hill to face a wave of primary challengers in 2018 if by year’s end they cannot deliver two key campaign promises: Obamacare repeal and tax reform.

It’s very early in the election cycle so many potential challengers are waiting to see how 2017 ends. There’s time for congressional Republicans to mitigate their legislative shortcomings, but the clock is ticking. Continue reading “2018 elections could become a GOP family feud”

Will Apple’s Next Smartphone Be a Hit?

Apple faces a huge test next month. The world’s largest company will unveil an updated edition of its flagship product, the iPhone. The question is, can Apple’s latest model “wow” consumers and investors alike?

Apple’s near-term success rides on the fate of the new phone. The iPhone first came on the scene in 2007 and has become Apple’s profit engine, accounting for a whopping 60%-70% the company’s sales. Much of Apple’s ecosystem, from apps to music, stems from the device. The new phone debuts in early September and starts shipping soon after. Here’s what to expect: Continue reading “Will Apple’s Next Smartphone Be a Hit?”

Sizing Up Heating Fuel Supplies Ahead of Winter

It’s only August, but it’s not too early to check in on the supply of the heating oil, propane and natural gas that that will start warming homes and businesses in a few short months. Especially since consumers could face notably higher heating costs this coming winter than what they have paid recently.

Like every other product, the price of heating fuel is determined by supply and demand. Demand, of course, depends on the weather, and thus can swing wildly from one winter to the next. Supply, on the other hand, is easy to gauge now.

This summer, stockpiles of all three major heating fuels are lower than they were a year ago. And that could push prices up if the winter of 2017-18 turns out to be colder than normal.

Heating oil supplies are relatively healthy. According to Department of Energy data, stocks of distillate fuels (which include both diesel and heating oil) are about 2% lower than they were at this time last summer.

Propane and natural gas are far less plentiful than they were a year ago. At 3.3 trillion cubic feet, the amount of natural gas held in underground storage is down about 8% year-over-year. Propane stocks are down a whopping 26%.

Some prices are already trending higher than last year. On the spot market, propane is selling for about 73 cents per gallon, up sharply from 43 cents a year ago. At $1.53 per gallon, heating oil futures are trading significantly higher than last August’s $1.26. Retail prices can be hard to track down, and vary across the country. But in New York, state data show that consumers are currently paying 9% more for home heating oil than they were a year ago, and 15% more for propane. Given the drop in inventories and rising crude oil prices, other states are probably seeing similar increases.

Higher winter heating bills aren’t a certainty yet. Stockpiles of gas, heating oil and propane still have at least a couple of months to increase before cold weather sets in and suppliers start drawing down their inventories to meet rising demand.

But building up supplies before winter is getting harder. The U.S. is exporting more propane and natural gas that used to be consumed domestically. Long a net importer of natural gas, America is now poised to become a net exporter thanks to new terminals that can liquefy gas and load it onto special tanker ships. And foreign buyers from Asia to Europe are gobbling up more U.S.-sourced propane. In both cases, exporters are seeking to take advantage of booming energy production enabled by hydraulic fracturing to ship gas and propane to markets where prices are higher.

The jump in exports means less fuel available to American consumers come winter, creating the potential for significant price increases if the weather turns frigid.

As to the long-term weather forecast, it’s probably too early to say much with any certainty. As autumn approaches, I’ll report back with what meteorologists are saying about the upcoming winter and what their predictions mean for heating costs.

Conflict Still Unlikely in North Korea Nuclear Standoff

Don’t panic yet: The U.S. is not on the brink of war with North Korea, even after a heated exchange between the two countries that culminated with Pyongyang threatening to put Guam, a strategically important U.S. territory that hosts several American military bases, in the crosshairs.

Heated exchanges are routine in U.S.-North Korean relations. Pyongyang regularly threatens to turn Seoul, the capital of South Korea, into a “sea of fire.” This time, the stakes are higher — as are the tensions between Washington and Pyongyang — but the old rule of thumb still holds: Kim Jong-un knows that any needless military provocation could result in the destruction of his regime, which means he’s unlikely to take such a drastic step.

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Who Profits from Cord Cutting?

There’s no end in sight to paid TV customers joining the cord cutters in droves. The media business, reeling from the upheaval, is racing to adjust to this swift disruption that is rerouting billions of dollars in advertising, subscriptions and programming fees from traditional TV firms to tech giants and others.

A new set of winners is likely to emerge in the aftermath of the shake-up as incumbents try to ward off rising startups and tech behemoths. Count on even more turmoil over the next five to 10 years as new technology emerges, from virtual reality to next-generation 5G wireless, that further upends the way people consume media.

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North Korea Puts New York in Range

North Korea made another major leap forward in its nuclear program over the weekend, successfully launching a new missile that experts say puts most major U.S. cities, from Los Angeles to New York, in range.

Like most of the Hermit Kingdom’s recent breakthroughs, this one came sooner than expected. North Korea still has several additional steps to master before it officially has the ability to conduct a nuclear attack on the U.S. But American intelligence officials now think North Korea will be able to field a nuclear-capable intercontinental ballistic missile as soon as next year. Just a few months ago, the consensus estimate was somewhere between five and ten years. 

Continue reading “North Korea Puts New York in Range”