Gulfport, Mississippi has declared a state of emergency because of heavy rain and widespread flooding in what is being called the worst flooding since Hurricane Katrina. The AP reported that Gulfport emergency managers say 5 to 12 inches of rain fell in the city during a thunderstorm yesterday. Flooding may raise the risk of shutting down the Mississippi, perhaps slowing the movement of commodity barges and could raise prices that are already posting their best gains since 2010. Also, we are trying to contact the Louisiana Offshore Oil Port to see if flooding impacted the operations. The LOOP, as it is known, takes in oil from foreign crude oil tankers, and stores and distributes the inventory via connecting pipelines to refineries throughout the Gulf Coast and Midwest. The LOOP is also the storage and terminal facility for the Mars and Endymion pipeline systems and their supply of offshore domestic crude oil. If they slow operations, we could see it impact inventories next week.

We also could see another drop in U.S. rig counts and do not expect them to bounce back even if oil prices go back up. As I have said before, the crash in oil prices have stripped the shale industry of cash and resources to bring rigs back on line. Forget the fracklog and look for more contraction.

In fact, the Investor Business Daily (IBD) reports that Baker Hushes is warning of even more rig count declines before U.S. counts stabilize in the second half of the year. The IBD says that North American rig counts are expected to fall 30% in Q2 vs. the Q1 average and doesn’t see activity “to meaningfully increase in 2016,” but U.S. rig counts may stabilize in the second half of the year, said CEO Martin Craighead in the earnings release. International rig counts are expected to “fall steadily through the end of the year.” Last week Baker Hughes said the U.S. oil rig count fell by 8 to 343. The Energy Information Agency said Wednesday that U.S. oil production continued to drop, falling to 8.938 million from 8.953 million the prior week.

But it is also Big Oil that has felt the pain and will be forced to slash spending and lower reserves and lay the groundwork for a future shortfall in supply. Exxon Mobil’s earnings per share are expected to fall by a whopping 74% year over year to 13 cents. For Chevron the EPS will fall to a loss of 15 cents per share down 120% year over year. Chevron is expected to post a loss for the most recent quarter and a 38% drop in its revenue for the three-month period ended in March. The Wall Street Journal reported that Oil giant Eni SpA Friday reported a net loss of €792 million ($897.8 million) for this year’s first quarter, a decline from its net profit of €832 million during the same period last year due to weak oil prices and a charge related to a subsidiary.

Even with this dismal outlook, Exxon Mobil raised its dividend in response to S&P’s consequential downgrade. Can Chevron do the same? Yet that may mean less money for investing in new and old projects. In February ExxonMobil cut capex by a quarter to $23.2 billion.

Once again Big Oil’s pain will lead to oil price gains. The damage is already done and protection destruction has begun. While in the short term we may see some more OPEC barrels in the coming weeks it may be offset by the outlook for falling non-Opec production. One cannot understate the significance of these billions of dollars in cuts leading to the loss of billions and billions of barrels of oil in the future. Start position for that future now.

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