Recap: Gasoline futures rose as much as 7% on Monday, as Tropical Storm Harvey continued to pelt Texas with high winds and torrential rains, forcing the closure of refineries along the Gulf Coast. September RBOB reached a high of $1.7799 a gallon, the highest level for a spot contract in over two years. After the covering scramble abated, gains were substantially trimmed, with the soon to expire September contract falling by as much as 4.2% before regaining ground. This spot contract tacked on 4.57 cents, or 2.7%, to settle at $1.7123 a gallon. Heating oil for September delivery settled at $1.6352 a gallon, up 1.29 cents, or 0.79%.
Refinery shutdowns mean less demand for crude oil, leading to an adverse effect on the price of crude oil compared to that for a gallon of gasoline and heating oil. Also tempering a rise in oil prices is the fact that the U.S. is less dependent on offshore barrels due to a rise in shale production. October WTI fell as much as 4.2%, as it experienced its widest one day range in a little over a month. Pressure in WTI widened its discount to Brent, with the October spread settling at $5.32, the widest discount for the spot month spread since August of 2015. October WTI shed $1.30, or 2.72%, to settle at $46.57 a barrel. Brent for October delivery fell 52 cents, or 0.99%, to settle at $51.89 a barrel.
Fundamental News: The US National Hurricane Center said Hurricane Harvey, which hit Texas as a Category 4 storm late Friday, was moving away from the Texas coast but was expected to linger close to the shore through Tuesday. It said floods would spread from Texas eastward to Louisiana.
The US Bureau of Safety and Environmental Enforcement said about 18.94% or 331,370 bpd of Gulf production was idled due to the storm as of Monday afternoon.
According to S&P Global Platts, nearly 2.2 million bpd of refinery capacity in Texas was shut down due to Hurricane Harvey as of Sunday. It is nearly half of Texas’ total 4.94 million bpd of capacity. Among the refineries shut down were ExxonMobil’s 560,500 bpd Baytown refinery, Valero’s 293,000 bpd Corpus Christi, Texas refinery, Citgo’s 157,500 bpd Corpus Christi refinery, Flint Hills’ 296,470 bpd Corpus Christi refinery, Magellan’s 50,000 bpd Corpus Christi refinery, Buckeye’s 50,000 bpd Corpus Christi refinery, Shell’s 340,000 bpd Deer Park, Texas refinery, Petrobras’ 112,229 bpd Pasadena, Texas refinery, Phillips 66’s 247,000 bpd Sweeny refinery and Valero’s 89,000 bpd Three Rivers refinery. In addition to the refineries, about 22% or 380,000 bpd of offshore production has been shut in, while 830 bcf/d of natural gas production has been shut in. According to the Texas Railroad Commission, about 300,000 to 500,000 bpd of Eagle Ford oil output has been shut.
The US Energy Department has decided not to release oil from the SPR because ongoing conditions due to Hurricane Harvey make it impossible. However, it stated that it stands ready to provide assistance as deemed necessary, to include any release of the SPR.
The IEA said there was no need for now to release fuel from emergency stockpiles to compensate for disruption caused by Hurricane Harvey because global oil markets are well supplied.
Goldman Sachs analysts said gasoline and distillate product refining margins are likely to increase further in the wake of Tropical Storm Harvey. It estimated that the storm would increase domestic crude availability by about 1.4 million bpd because of refinery shut-ins. However, it cut gasoline supplies by 615,000 to 785,000 bpd and reduce distillate supplies by 700,000 bpd.
Venezuela’s Oil Minister, Eulogio del Pino, will visit Russia and Saudi Arabia ahead of a joint OPEC, non-OPEC monitoring ministerial committee meeting in Vienna on September 22nd.
Early Market Call - as of 9:00 AM EDT
WTI - Oct $46.43, down 14 cents
RBOB - Sep $1.7369, up 2.42 cents
HO -Sep $1.6543, up 1.9 cents
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