News & Views
News & Views
News & Views
Energy Prices Holding Onto Modest Gains
Energy prices are holding onto modest gains as trading winds down on a strong week, month, and quarter for the petroleum complex. As Bloomberg noted this morning, this will mark a 5th straight quarter of gains for Brent crude oil prices, something we haven’t witnessed since the rally from $70 to $145 more than 10 years ago.
While Brent Crude & ULSD futures are trading near 4-year highs, WTI and RBOB futures are still holding below their summer levels, setting up an interesting tug-of-war for control of the petroleum complex as we enter the 4th quarter.
While concerns about global supply reductions (driven largely by Iranian sanctions and Venezuelan chaos) have helped fuel the rally this year, rising oil prices combined with rising interest rates and a stronger dollar are threatening to derail demand growth in emerging economies which could help prices stabilize in the coming year.
The US Justice department and EPA announced Thursday they’d reached a settlement with NGL over fraudulent RIN activity by Gavilon LLC prior to NGL’s acquisition of that company. The settlement included a $25 million penalty and a retirement of 10 million RINs.
Coincidentally, RIN markets have reached 5 year lows this week after the EPA released new data on the Renewable Fuel Standard which showed plenty of RINs available to meet obligations, and as rumors circulate that a new deal to satiate big Ag and Big Oil may be coming ahead of the mid-term elections.
Rally In Energy Prices Has Resumed
After a 1-day break, the rally in energy prices has resumed Thursday with Brent crude back above $82, and ULSD futures reaching their highest since February 2015. Concerns over Iranian sanctions continue to take most of the blame in headlines for the move higher while some bearish data points in Wednesday’s DOE report have quickly become yesterday’s news.
US Crude inventories built modestly as US production reached a record high at 11.1 million barrels/day. That production figure is 1.5 million barrels/day more than what the US was producing at this time last year.
Refinery runs dropped by more than 5% on the week, led by a dramatic drop in PADD 2 (Midwest) runs of nearly ½ million barrels/day as a busy fall maintenance season appears to be coming to fruition. Several reports over the past year suggest that we may see more refinery maintenance than normal in the next year as plants prepare for the spec change in Marine diesel starting in 2020.
Total petroleum demand saw another large slump last week as the DOE’s estimate for gasoline fell by more than ½ million barrels/day last week, dropping below 9 million barrels/day for the first time since May.
As expected, the FOMC raised interest rates for a 3rd time this year, and suggested it would stick with its plan to raise rates a 4th time in December. Equity markets initially rallied as the statement omitted a sentence from previous meetings that suggested the FED was looking more dovish on rates, but that optimism was short lived as US stocks sold off heavily into the close.
In other news, Energy Secretary Rick Perry said yesterday that the US is not considering a release of the SPR to offset the impact of sanctions on Iran.
Nearly 5.5 years after the FBI raid that shocked the industry, the former president of PFJ was sentenced to more than 12 years in prison for his role in a scheme to defraud customers.
US Crude Stocks Threw Cold Water On Petroleum Price Rally
A build in US crude stocks threw a bit of cold water on the petroleum price rally Tuesday afternoon, offsetting the flow of hot air coming out of the UN assembly in New York. ULSD futures did manage to join Brent crude in reaching its highest level in nearly 4 years before the pullback began.
The API was said to report a build in crude oil stocks of 2.9 million barrels last week that sparked a late afternoon sell-off that’s carried through the overnight session. Gasoline stocks were said to increase by roughly 949,0000 barrels, while distillates declined by 944,000 barrels. The DOE’s weekly recap is due out at its regular time this morning.
Brent’s outperformance compared to the other petroleum contracts this week has highlighted logistical challenges causing north American grades to trade at steep discounts (WTI in midland is around $25/barrel cheaper than Brent, and WCS was more than $43/barrel cheaper). Meanwhile, the European benchmark is facing the opposite problem as declining production in the north sea risks making the contract less relevant, forcing the contract’s pricing agency to consider a revamp of the crude grades allowed to make up the Brent reference price.
The FOMC wraps up its 2 day meeting today, and traders are giving a 100% probability of some rate increase when their statement is announced at 1pm central. According to the CME’s Fedwatch tool, there’s an 83% probability priced into futures of another rate increase in December, so unless we see some deviation from this plan, there may not be a large market reaction given the high levels of confidence in the FED’s actions.
Push Higher Continues For Energy Prices
The push higher continues for energy prices following the OPEC & Friend’s decision to leave official output quotas unchanged over the weekend. Brent crude reached a new high north of $82 overnight, reaching its highest level since November 2014
While Brent is surging to 46 month highs, North American grades aren’t faring quite as well with WTI nearly $10/barrel lower than Brent and Western Canadian grades now nearly $43/barrel below its Western European counterpart. WCS reached a record discount to WTI in Monday’s session as logistical bottlenecks continue to hamper land-locked oil prices.
Right on cue, the CME Group announced its plans to launch a new WTI Futures contract with delivery points in Houston, which it said will complement the benchmark WTI contract that delivers in Cushing OK, and will compete with the ICE’s Houston contract that began trading earlier in the year.
The FED’s Open Market Committee (FOMC) begins a 2-day meeting today, and according to the CME’s FEDWATCH tool, traders are giving a 100% probability of at least a 25 point interest rate increase being announced tomorrow afternoon, while 6.2% are predicting the increase could be 50 points. 10 year treasury prices are approaching a 7 year high as it appears the FED is eager to continue its rate hikes.
Brent Crude Oil Prices Reached Their Highest
Brent crude oil prices reached their highest in nearly 4 years overnight, trading just shy of $81/barrel after a meeting of OPEC and Friends over the weekend ended with no new pledges to boost oil production.
It seems the cartel agrees that $80/barrel is a high enough price (and some think it’s too high) but the group says it will wait until the November meeting to see how sanctions on Iran will impact global supplies before making any official changes.
Money managers seems a bit conflicted on energy prices last week. Net length held by the speculative category of trader increased for a 4th straight week for Brent contracts, but declined for a 2nd week in WTI and ULSD, while RBOB saw a modest tick higher after dropping last week.
Baker Hughes reported a net decrease of 1 oil rig in the US last week.
Energy Prices Recovered All Of Thursdays Losses
Energy prices have recovered all of Thursdays losses in early morning trading today: gasoline and diesel contracts are up two cents this morning while American and European crude grades add on between $.50 and $1 each.
Lower prices were being loosely attributed to some strongly worded social media posts made by the White House yesterday insisting that the world’s largest oil cartel should ‘get prices down now’. This comes days after Saudi Arabia stated it’s comfortable letting crude prices continue their gradual climb to $80 per barrel.
Speaking of, OPEC is putting on a problem-solving forum in Algeria on Sunday to figure out who and where the Iran replacement barrels will come from. With an estimated 2.5 million barrels of crude oil per day up for grabs due to sanctions on the Islamic Republic, the meeting is expected to agree that Russia will cover the deficit. The cartel is expected to leave its own production expectations untouched.
‘Dynamic Development’ seems to be the name of the game in as far as tropical weather goes. A blast of Saharan dust has been keeping storms from organizing so far this week but there are now four disturbances in the Atlantic. Fortunately, for now anyway, it looks like only one of these has a chance for cyclonic development in the next week and, since it is just off the Western coast of Africa, poses no threat the States for the several few days.
First Evidence Of Fall Refinery Maintenance Season
The first evidence of fall refinery maintenance season started to show up in yesterday’s EIA data release as refinery runs fell almost half a million barrels per day across the country. That draw down seems less significant when paired with the fact that throughputs are still ¾ million barrels per day higher than they were in 2016 and remain at record seasonal highs for the time being. RBOB and HO futures saw some increased buying pressure yesterday as a result and finished up 1-1.5 cents after starting the day in the red.
Even though the refineries were using less crude oil last week, we still saw a drop in national and Cushing oil stocks for the same time period due to a 30% bump in exports. This combined with a Saudi statement that the Kingdom will not help backfill supply shortages caused by fellow OPEC members Iran and Venezuela, pushed WTI futures prices almost $2 higher to settle above $71. The American oil benchmark settled at levels not seen since early July.
Tropical activity remains low so far this week with only one disturbance showing a 20% chance of cyclonic formation for the next couple days. The potential system located 800 miles off the Venezuelan coast has a low likelihood of disturbing energy infrastructure in the US.
The phenomenon affectionately(?) known as Reversal Thursday seems to have a hold of energy prices so far this morning. After a strong week of gains the complex seems to want a day’s rest: RBOB and HO are down almost half a cent while WTI is nearly flat, seemingly resolved to stay above the $70 mark.
Energy Complex Mixed Today
The energy complex is mixed today following the American Petroleum Institute’s inventory report published around 4pm CDT yesterday. By their estimates total crude oil stocks rose 1.25 million barrels through the week ending 9/14 while levels at Cushing (the delivery point for the crude oil futures contract) dropped just over 1 ½ million barrels. The offsetting move has crude prices flat so far this morning.
Gasoline stocks fell and diesel stocks built by about 1.5 million barrels each and their respective futures prices reflect as such, leaving the screen a patchwork of red and green to start the day. The Energy Information Administration’s version of the inventory report is due out at 9:30 CDT this morning.
A new tropical disturbance has popped up overnight, located about 1,000 miles east of the Windward Isles off the coast of Venezuela. It’s too early to tell if this new tropical wave could pose a threat to the US but the National Hurricane Center gives it a 20% chance of cyclonic development in the next 48 hours. Otherwise, all things seem quiet on the Atlantic front for now.
Geopolitical Issues Taking Credit For Sharp Rally
A slew of geopolitical issues seem to be taking credit for this morning’s sharp rally ahead of formal opening at 9am EDT. The White House instructed the US trade representative to impose a 10% tariff on over half of all Chinese goods (over $200 billion worth) exported to the US. China, not terribly thrilled with the news, claimed Monday that retaliation was inevitable.
Oil exports from Iran are feared much lower from now until November 4th, when the US resumes their sanctions on the OPEC member after pulling out of the nuclear deal struck between Iran and world powers back in spring 2018. US allies are reportedly cutting back imports from Iran ahead of the fall deadline leaving a big question mark as to where the replacement barrels will come from.
A Russian reconnaissance plane was shot down by Syria, their ally, in what has been determined to be a friendly-fire incident. Russia, in what can only be described as a very Russian response, is casting blame on Israel who were allegedly launching air assaults at the time. While not much is expected to come of this, simply the presence of these three countries in the same headline certainly isn’t going to dampen bullish sentiment today.
Prompt month gasoline and diesel futures are up over 3 cents this morning, each breaking through some significant resistance levels set by moving averages. There isn’t much in the way on the charts for both refined product contracts to tack on an additional 2-3 cents before meeting some technical selling pressure. WTI futures seem to be making their move for the (mostly psychologically) important $70 level, breaking above which could lead to a renewed rally for the American crude benchmark.
Refined Product Prices Recovering Friday’s Losses
Refined product prices are recovering much of Friday’s losses so far this morning, gasoline futures are up about 2 cents to start the day, diesel futures up just half that at a penny. American crude oil contracts are extending their gains from last week as they poise to make another run at the $70 level.
Hurricane Florence came and went last week and was recently downgraded to a tropical depression early Sunday. For now it seems the largest risk to supply in the area, an outage at Colonial’s major pipeline junction in Greensboro, NC, has passed after heavy rains called for flash flood warnings that only just ended at 7:45 EDT. The depression is projected to drop 1-4 inches of rain throughout the north east region, with the heaviest rainfall focused in northern Pennsylvania, upstate New York, and Massachusetts. Aside from a single port in NC and some spot outages at retail stations near the coast, TD Florence is not expected to have any significant impact to energy infrastructure.
Invest 95L brought heavy rains and mild flooding to Houston/Galveston area but no major impacts have been reported. Fortunately, the disturbance was too close to land to develop into an organized system before making landfall Friday.
The remnants of Isaac, a tropical disturbance just to the south of Jamaica, is now the only potential storm-related threat to the US, and a distant one at that. The National Hurricane Center gives the disturbance a 10% chance to developing into a cyclone over the next 48 hours. It will continue to be monitored but potential impact remains minimal.
Baker Hughes reported an increase of 7 oil production platforms, bringing to total active rig count to a 3 ½ year high. Closures in Texas, New Mexico, and Wyoming were offset by activationss in Louisiana, Pennsylvania, and Colorado.
As expected, money managers trimmed their net long positions in WTI, RBOB, and ULSD after prices fell off the last week of August. Brent crude futures remained the lone recipient of increased bullish speculation.
Refined Products Moving Modestly Lower
Refined products are moving modestly lower, while oil prices are moving modestly higher to start Friday’s trade, a fitting divergence to end a very choppy week of trading.
It looks like currency and commodity markets wanted to take a break from their recent mirror image relationship Thursday with both the US Dollar and Energy prices facing heavy selling. The drop in the dollar was blamed on lower-than-forecast inflation reading, the BOE and ECB leaving rates unchanged, and concerns over trade talks with Canada and China.
The sell-off in energy futures – given the lack of any major global fundamental news, rising US stocks, and the aforementioned dollar decline – seems to be driven by liquidation once it appeared that Florence wouldn’t interrupt the NY Harbor delivery hub, and the storm moving towards Texas wouldn’t substantially impact the Gulf Coast refining hub.
Hurricane Florence has made landfall on the North Carolina coast. So far the pipelines connecting the Gulf Coast Refining center to East Coast consumers have not reported any operational issues. As long as the pipelines can continue operating, fuel shortages will be limited by truck capacity rather than inventories. The EIA published a report on the potential impacts to both electricity and fuel supplies Thursday.
While 95L is reaching the Texas coast and has only a 20% chance of developing beyond thunderstorms, the latest forecasts for Isaac show there’s still a chance this system could make it into the Gulf of Mexico next week.
Petroleum Futures Selling Off To Begin Thursday’s Session
After 2 strong days of buying, petroleum futures are selling off to begin Thursday’s session following cautionary demand estimates from the EIA, IEA and OPEC in their most recent reports.
Several waterborne terminals along the East Coast have already shut as a precaution ahead of Florence’s landfall (believe it or not those big tanks at petroleum terminals can float or blow away so they try to shut down lifting with ample product to protect the integrity of the shell) and many inland terminals in the storm’s path are planning to shut down this afternoon. So far the pipelines continue to operate on a relatively normal schedule. If they can continue operating through the storm, it seems Florence is likely to have a bigger impact on petroleum demand, than it will on supply.
The picture below from the National Hurricane center shows storms named Florence, Helene, Isaac and Joyce, along with the disturbance known as Invest 95L heading for the Texas coast. That disturbance was given a 70% chance of developing Wednesday afternoon, but only a 50% chance now, but is still expected to bring more heavy rain to Corpus Christi and perhaps Houston which are already facing flash flooding. Isaac will need to be watched next week as it could still turn north into the Gulf of Mexico, while Helene and Joyce look like they’ll stay out to sea.
OPEC reported an increase in the cartel’s oil output last month, with gains from Libya, Iraq, Nigeria and Saudi Arabia offsetting declines from Iran and Venezuela. The cartel’s monthly oil market report also increased its global oil supply estimates for 2019 slightly, while decreasing its demand estimates, citing concerns over what the trade tirades may do to economic activity.
The IEA cited similar concerns about trade in its monthly oil market report, but held their demand estimates from their last report.
The IEA also noted that the world just set a record in August with global oil production surpassing 100 million barrels/day.
The EIA reported a sharp drop in total US Petroleum demand last week, with the diesel demand estimate reaching its lowest weekly level in more than 18 months. While 1 data point does not make a trend – especially with the fickle nature of the EIA’s weekly estimates – the sharp drop off in diesel demand could be an early warning sign that the US Economy could be slowing down.
Charts from the DOE’s weekly status report
Drop In US Inventories Combined With Global Supply Concerns
A drop in US inventories combined with global supply concerns and what looks to be a bit of panic buying ahead of Hurricane Florence to push energy futures sharply higher in the past 24 hours. WTI has broken back above the $70 and Brent is threatening $80
While the estimates for damage along the Carolina coast is reaching record levels as Florence approaches, as long as the pipelines can continue to operate on a somewhat-normal basis, this storm should not create widespread shortages of refined fuels. The bigger challenges at this time appear to be a coming lack of power, trucks & clear, dry roads.
Most terminals in the region (represented as triangles in the DOE’s disruption map screenshotted below) have announced plans to close operations sometime Thursday ahead of the storm, and will plan to re-open as soon as it’s safe to do so. Waterborne terminals are a bigger question mark than the inland pipeline-fed locations as we’ll have to wait and see what damage may be done by the storm, and how soon vessel traffic can begin operating normally again.
While most attention is focused on the East Coast, there are still concerns about a potential storm developing in the Gulf of Mexico in the next few days, along with Isaac as it makes its way through the Caribbean. With Corpus Christi and Houston already facing flash flooding from thunderstorms, there is a risk (albeit nothing like we saw a year ago) that some disruptions to the US refining center could happen in the next couple of weeks.
The API was said to report a large draw in US Oil inventories last week north of 8.6 million barrels, while product inventories had large increases of 5.8 million barrels for distillates, and 2.1 million barrels of gasoline. The EIA’s version of the weekly stats is due out at its normal time this morning.
The EIA is estimating that the US has taken back the title of the world’s largest oil producer in a note released this morning coinciding with its most recent Short Term Energy Outlook released yesterday.
Energy Futures Trying Another Modest Rally
Energy futures are trying another modest rally to start Tuesday’s trading after Monday’s early buying spree failed to hold on. The action seems a bit muted with lower volume than normal as people pause to remember the 17th anniversary of 9/11 while anxiously awaiting the arrival of Hurricane Florence.
While port closures and barge delays from the Delaware and Chesapeake bays south all the way to Jacksonville are all-but guaranteed as the Florence gets closer to land, the key for refined product supplies in the region throughout this storm will be whether or not the pipelines can continue operating. So far both Colonial and Plantation pipelines and the numerous terminals they supply across the region are operating normally so far (albeit with longer lines to load than normal as buyers race to fill up) but the uncertainty of inland flooding and power outages creates concern for assets far from the coast.
When it rains it pours seems unfortunately fitting this week as a 4th tropical system is being given a 60% chance of forming in the gulf of Mexico and heading for the Texas coast. While the forecasts aren’t (yet) suggesting this storm becomes a hurricane, it will bring more heavy rains to areas of Texas that have already been inundated in the past few weeks. Tropical Storm Isaac is heading for the Caribbean, so it bears watching as that leaves the door open for the storm to get into the Gulf of Mexico, while Helene looks like it turn north and stay out to sea.
Brent prices are getting a boost from reports that Libya’s national oil company offices came under attack yesterday, although no impacts to production were reported.
Energy Futures Ticking Modestly Higher To Begin Week
Energy futures are ticking modestly higher to begin the week as traders monitor 3 Atlantic hurricanes, and several other geopolitical storms on several continents.
Reports that the P66 Bayway refinery would be closing a gasoline-making unit last week helped RBOB futures bounce 7 cents after reaching their lowest levels since March Thursday morning, and seem to be underpinning the gasoline contract to start the action today.
Hurricane Florence is expected to make landfall near the Carolinas Friday morning. Even though landfall is expected far to the south of the Philadelphia area refineries, there are still concerns about flooding along the Delaware bay area that could cause issues both at the plants themselves, and with waterborne crude oil deliveries.
As the map below shows, Hurricane Helene is forecast to head north and stay in the open Atlantic with no threat to the US, while Isaac is still a question mark as it makes its way into the Caribbean.
Baker Hughes reported a decline of 2 active oil rigs last week, while the natural gas count increased by 2. Oklahoma and New Mexico both saw declines on the week while Louisiana increased and Texas held steady.
For the 2nd week in a row, money managers added to their net long positions in WTI, Brent and ULSD with only RBOB seeing a net decrease in speculative bets on higher prices. Those new longs were just in time for the worst weekly drop in 2 months so it seems like we could see a move in the opposite direct this week.
Bearish Bullet Points Pushed Prices To Edge Of Technical Breakdown
Energy prices have stabilized in the past 18 hours after bearish bullet points from the DOE pushed prices to the edge of a technical breakdown. The Weather Channel seems to have taken over for CNBC in market-moving news for energy traders, and with 3 storms lined up in the Atlantic, it looks like that may last another week.
RBOB gasoline futures dropped 14 cents from Tuesday’s high to reach their lowest levels since March at $1.92, but have managed to bounce by nearly a nickel since the post-DOE selloff as forecasts for Florence show an increased threat to the East Coast. Oil & diesel prices had similar moves, with WTI bottoming out at $67, Brent at $75 and $2.19 for ULSD
Forecasting models are still literally all over the place with Florence’s path with some tracks as far south as central Florida into the Gulf Coast, while others have the storm heading straight for the New York Harbor. On average, the tracks have shifted further south & west from yesterday afternoon, with a potential landfall around the Carolinas now looking more likely. With so much uncertainty in the forecasts, the reality is we just won’t know until Sunday if the storm will make a turn north and create a more clear path for next week.
Meanwhile, the other 2 storm systems moving off the African coast are given a strong probability of developing by the National Hurricane Center.
The August Jobs report had an estimate of 201,000 new jobs added during the month, while the U-6 unemployment rate dropped to 7.4% and the headline unemployment rate held steady at 3.9%. Stock and energy prices dipped slightly following the report, but have since stabilized. One point to watch, average hourly earnings ticked up for their highest annual increase in years, as the wage inflation that had seemed inevitable for so long finally showed up in the numbers.
Charts from the DOE’s weekly petroleum status report:
Energy Futures Trying To Bounce After Post-Labor Day Head-Fake
Energy futures are trying to bounce this morning after the heavy post-labor day head-fake brought on a wave of selling Wednesday. RBOB futures are trying to lead the rest of the complex higher as some markets along the Eastern Seaboard are feeling their annual squeeze as we tick down the last 2 weeks of summer-grade gasoline supply.
On the macro level the concerns about tariff-tantrums and emerging economy chaos have roiled equity markets this week, and perhaps lent a hand in the pullback for energy prices. On the other side of the equation, uncertainty over supplies from Iran, Libya and Venezuela should give sellers second thoughts, as might the suddenly turbulent Atlantic Ocean.
Just on time for the peak of the hurricane season, we may end up with 3 named storms in the Atlantic next week, after dodging a bullet earlier this week. As Gordon’s remnants dump rain across large portions of the country, we now have to worry about Florence as it became the first major Hurricane in the Atlantic this year, and its forecasted path continues to show possibilities of threatening the East Coast next week, and then we’ll have to watch the 2 new systems forming in the Eastern Atlantic as well.
The API was said to report a crude draw of just over 1.1 million barrels last week, while refined product inventories built 1.74 million barrels for distillates and 1 million barrels for gasoline. The DOE’s weekly status report is due out 24.5 hours later than normal due to the Labor day holiday. It’s not clear why they need the extra 30 minutes on holiday weeks, or if the time will make the report any more accurate/exciting than normal.
Tropical Storm Gordon Took Path That Avoided Most Gulf Coast Oil Production And Refining Assets
Gasoline prices are trading 9 cents below where they were this time yesterday, and diesel prices are down some 7 cents, as Tropical Storm Gordon took a path that avoided most Gulf Coast oil production and refining assets.
After an overnight buying spree Monday, sellers started bringing prices back to reality around 8am Tuesday as it appeared the storm would miss New Orleans. The selling picked up pace into the close and RBOB futures ended the day in negative territory after being up more than 6 cents to start. That type of intra-day reversal creates a bearish chart formation which has not disappointed as prices have slumped another 2 cents so far this morning.
While Gordon came onshore far enough east that it doesn’t appear to have disrupted refiners in Louisiana, its landfall was just a few miles from Chevron’s 370mb/day refinery in Pascagoula Mississippi, and there have not yet been reports on that facility’s status. That plant is a key supplier of waterborne fuel supplies to Florida, so there could still be some regional impacts if there was damage done to the plant or its docks by this storm, but any impact looks to be minor compared to what it would have been if the storm had shifted further west.
Although most Gulf Coast refiners dodged a major bullet from Gordon this week, there’s no time to take a breather as Hurricane Florence is already churning through the Atlantic and may come uncomfortably close to the US East Coast next week, and Helene and Isaac are expected to form right behind her.
In non-weather news, a stronger dollar looks like it’s once again helping the downward pressure in energy prices, and several Wall Street firms masquerading as banks are predicting that oil prices will be lower next year.
The weekly inventory reports are delayed by the Labor day holiday. The API’s weekly report will be out late this afternoon, and the DOE’s report will be out tomorrow morning.
Energy Prices Surging As Tropical Storm Gordon Takes Aim At US Gulf Coast
Energy prices are surging this morning as Tropical Storm Gordon takes aim at the US Gulf Coast. There are plenty of other reasons for crude to rally today, lower Iranian exports, more chaos in Libya and predictions of shortages in Nigeria, not to mention some US oil platform evacuations, but today’s action seems to be more focused on the potential impacts to refined product supply with roughly 16% of total US refining capacity in the forecast cone of Gordon’s path. ULSD futures have already reached their highest levels since January 2015 in overnight trading.
While this storm is a serious threat, coming much to close for comfort to one of the largest clusters of refineries in the world, it is not expected to be a major hurricane as it makes landfall as either a tropical storm or a category 1 hurricane, unlike Harvey and Irma in 2017 which were both category 4 storms when they reached land.
In addition to the lower strength than what we saw a year ago, current forecasts show the center of the storm staying east of the critical refinery cluster along the Mississippi river from Baton Rouge to New Orleans, which is good news for refined product supplies as the west side of these storms gets significantly less storm surge due to their rotation. The further east the storm stays the better for oil production as well as it will impact fewer offshore platforms in the Gulf of Mexico as you can see in the maps below from the EIA. By this time tomorrow we should have a better feel for any supply disruptions which will likely be the difference in today’s gains going away, or being just the beginning of much higher September prices.
In other news, managed funds added to their net length (increase their bets on higher prices) across the board in petroleum contracts last week, not surprising given the strong bounce in prices we saw to end the month. Baker Hughes reported 2 more oil rigs were put to work last week after dropping by 9 the week prior.