As Florida Braces For Category 4 Hurricane Today, Terminals Are Struggling To Keep Supplied Due To The Spike In Demand

Oil prices are trading down around 3% this morning, leading the energy complex on its latest wave of selling after the Financial Times reported a new price war may be brewing as Saudi Arabia is preparing to abandon its $100 oil target in favor of taking back market share. A similar move by Saudi Arabia sent prices plummeting a decade ago, so this story has the potential to become the dominant factor for energy markets for the balance of the year if it proves true.

A potential port-worker strike won’t have much direct impact on energy imports and exports as most oil and refined products are handled at private docks with non-union labor. That said, indirect impacts on fuel demand from the potential bottlenecks that could delay shipments of everything from car parts to bananas are certainly possible if the negotiating brinksmanship isn’t solved by early next week and if the White House doesn’t intervene.

As Florida braces for a devastating category 4 hurricane today, terminals in the region are struggling to keep supplied due to the spike in demand. Operators from the Florida panhandle to Tampa will suspend operations at some point today to avoid letting tank levels get to low where wind damage becomes more likely, and in the case of Tampa Bay, storm surge is expected to flood several of the facilities but given the favorable location of the storm’s path away from major population centers, long term damage to those facilities is likely to be avoided. Meanwhile, tropical storm Isaac was named in the North Atlantic, and Joyce is expected to be named in the next several days, but neither storm is heading towards the US coasts.

The DOE also reported very minimal impact from Hurricane Francine in its most recent data. Probably the most notable change with influence from the storm was a 1% drop in PADD 3 refinery run rates, and most impressive was that total oil output was unchanged for the week despite many operators removing non-essential personnel as the storm passed. Despite that dip in refinery production, total run rates remain well above levels we saw the past few years across the US, with higher figures in PADDs 1 and 2 standing out more than other regions. That extra production is certainly contributing to the drop in refining margins which are hovering near 3 year lows as plants seem to be playing a game of chicken with their neighboring facilities to see who might cut back on run rates first to avoid burning cash through the winter.

A surge in PADD 5 gasoline imports wasn’t enough to prevent another large drop in the region’s inventory levels last week, setting up a notable test of California’s theory that the state can easily import its boutique grades of fuel whenever necessary to keep minimum inventory levels on hand. The CEC announced another workshop in early November to detail some of the agency’s proposals on refiner reporting and other rule changes.

RIN values climbed to an 8 month high Wednesday after the DOE reported ethanol production dropped sharply to a 5 month low, and apparent bets on 4 more years of a less-refinery-friendly administration continue.

New York state announced it had selected WCI as its software provider to support its theoretical cap and trade program which is still in an “assessment” stage before a formal regulatory proposal is made. WCI also provides its software in support of California and Washington’s cap and trade programs, and is well known for anyone who actually has to report under those programs for it’s less-than-intuitive CITSS transaction platform. You may also recall that New England was considering a similar proposal until politicians realized inexpensive gasoline was more conducive to their career longevity a couple of years ago.