The energy industry has entered into a volatile trading period which many of us will remember. Hurricane Harvey is expected to make landfall east of Corpus Christi, Texas tonight as a Category 3 hurricane. This will be the most powerful storm to make landfall in the U.S. in 12 years with the heart of oil refining country in its path. It could have a significant impact on refined products for weeks and potentially months.
The most up-to-date forecasts have wind gusts at landfall measuring up to 130 mph and storm surges of 12 feet. The scariest part of this storm is the projected rainfall and devastating flooding to come. Most weather models predict this storm will hover around Southeast Texas, between Corpus Christi and Houston, drenching the area for a few days with forecasts estimating more than 24 inches of rain. This much rainfall is the most troubling aspect for the refineries.
The concern being, that much rainfall, in a short amount of time, will be difficult to drain out of the refinery facilities and could potentially limit output for weeks and perhaps months if it is catastrophic. Not only is that an issue, but the flooding has the ability to wipe out power for an estimated 3.5 million users in the affected area. In that affected area, power stations are powering the pipelines which ship refined product from the refineries to the rest of the country. This raises a huge concern that major pipelines, coming out of the Gulf, will reduce shipping rates and thus raise terminal prices in other markets as well.
While we know that the refineries are in trouble, a key aspect of this storm is trying to ascertain how much production will be shut in. Particularly if the high production area of the Eagle ford is shut in drastically or not. If it is, we can expect both crude oil and refined products to rise. If production capacity is not really affected, the refined products will rise in comparison to crude oil, known as the crack spreads. However, crude could fall because refiners will not have demand for it, in which case the rise in product prices may be muted.
The resurgence of this storm caught everyone by surprise yesterday, but we are all well aware of the devastating effects it will bring, not just our industry, but the lives and wellbeing of millions of people in its path. If you have questions about how to protect your fuel costs or want to strategize your buying for the coming weeks, please contact your salesperson here at Guttman Energy to learn more.
September RBOB was trading $0.07 higher earlier this morning, and now we are approximately flat on the day at $1.6632/gallon as many people are profit taking after RBOB was up 12 cents in a 24 hour period. ULSD is lower by $0.0023 at $1.6187/gallon, and Oct WTI is higher by $0.25 to $47.68/barrel.