Hurricane Beryl Has Energy Markets On Edge

Hurricane Beryl has energy markets on edge, helping to push refined product futures up more than a dime to start the week while oil prices reach 2-month highs. In addition to the storm concerns, there seems to be more short covering at play as prices have punched through technical resistance, and bullish seasonal factors like a record setting travel week, and traders’ tendency to not want to go short into a holiday weekend, even without a major hurricane threat.

If you want to scare people you tell them the facts that Hurricane Beryl is now a category 5 storm with sustained winds of 165mph, and forecast models point it right at Houston. Those are both true, but they omit the details that forecast models also show the storm weakening to tropical storm strength as it crosses land and moves into the Gulf of Mexico over the weekend. With a full week or until this storm reaches the US, there’s plenty of time for the forecasts to change, but at this point, the storm’s path looks about as bad as possible heading towards the origin point for the country’s largest pipeline systems and its largest refining clusters. The positives are the forecasts don’t expect this to be a major storm when it hits the US, and it’s predicted to move through relatively quickly as it heads north and east, compared to a storm like Harvey that stuck around for days. There is also a chance that the movement over Mexico interferes with the storm’s rotation enough that it can’t reform before hitting the US, but at this point, both the Euro and US official models have shifted its path back out over the Gulf of Mexico which means it should have time to re-form.

The storm’s path will also create extra drama for the holiday weekend as spot markets won’t be assessed, but futures will be trading, so it’s likely we could see big swings in futures prices Thursday and Friday that could force rack prices to change even though the spot markets won’t move until Monday, which sets the stage for a big price swing in either direction depending on the storm’s path.

In Monday’s session we saw gasoline basis values in the USGC tick higher as traders started to cover short positions and prepare for the potential of shut in production. Adding those basis gains to the big rally in futures pushed gasoline wholesale prices to their highest levels since April. Diesel basis values saw a slight decline Monday which may reflect the fact that the storm’s path may also interfere with the export market in the coming week, which USGC refiners are dependent on to get rid of their excess supply.

In non-storm news, RIN values ticked up to a 6-month high Monday, with D4 and D6 values both trading close to $.59/RIN as it appears the production of renewables continues to slow after the furious pace of the past two years that left many markets grossly oversupplied and crushed their credit values. Shell announced it was halting construction on one of the world’s largest biofuel production facilities in Rotterdam after nearly 3 years of development. That facility was expected to be one of the world’s largest RD and SAF producers, but like we’ve seen from a half dozen others this year, simply can’t make ends meet without higher credit subsidy values to compete with lower cost fuel options.

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