No shortage of headlines here as summer vacations come to an end after the long Labor Day weekend. Gasoline trades lower by over 5 cents per gallon as pipelines and more refineries came back online over the weekend. Crude oil is rallying as refineries crank up demand to begin producing again and OPEC ratchets up rhetoric that it may extend current production cuts. The biggest unknown at the moment is whether Hurricane Irma is a supply or demand problem in our industry, which was upgraded to a Category 5 storm this morning, with the latest forecast models have it striking Florida next Sunday.
October gasoline traded down $0.0519 to $1.696/gallon while ULSD was virtually unchanged at $1.7461/gallon late Tuesday morning as Reuters reported that some shipping lanes, pipelines and refineries restarted after recovering from the Harvey devastation. The Department of Energy reported yesterday that about 2.1 million barrels per day of refining capacity still remains offline, which is quite an improvement from the nearly 4.5 million barrels per day of capacity offline last week. The Colonial Pipeline has restarted flows on Line 2 (distillates) in affected areas over the weekend and will restart Line 1 (gasoline) between Houston and Hebert later today; however, terminals in the Southeast still remain dry of product until the delayed cycles are delivered. Product availability may remain spotty for at least another 7 days there and in the South until the delayed batches hit the terminals.
Crude oil is rallying up $1.54 to $48.83/barrel as traders bid it up now that more refineries can take delivery of their biggest feedstock. This surge for demand all at one time has rallied the market for the time being, but the entire oil complex is susceptible to a NYMEX price drop over the coming weeks as the supply situation hopefully normalizes and customers’ panic buying subsides. However, NYMEX is a global indication, there are other variables to account for which may keep prices in localized markets inflated for the next 7 to 10 days. An additional catalyst today pushing crude to the upside were comments by Russian Energy Minister Novak. Bloomberg reported that he said Russia and Saudi Arabia discussed the possibility of extending the OPEC/Non-OPEC production cuts at a meeting held in St. Petersburg, Russia. This rhetoric tends to pop up every few weeks, but these two suppliers account for the highest amount of production in the group so their rumors can’t be taken lightly by the already frazzled market.
Lastly, let’s talk about Irma. She was upgraded this morning to a Category 5 with the highest probability of making landfall on the east side of Florida next Sunday. Most notably Puerto Rico and Florida are in states of emergency as of yesterday. With regards to our industry, it appears that it will likely dampen demand as there is not much production or refining capacity in Florida. Earlier today, Tropical Storm Jose was named and is trailing Irma, about 1,500 miles east of the Leeward Islands. Additionally, there is a disturbance in the Gulf of Mexico, east of Mexico with about 60% chance of cyclone formation in the next 48 hours. This hurricane season is shaping up to be historic and catastrophic.