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Storm Threatens The Refining Country

Friday, Aug 21 2020
Market Talk

Based on how 2020 has gone so far, it seems fitting that we might have two hurricanes hit the Gulf Coast on the same day next week.

The two storms, which will eventually be named Laura and Marco, and each will bring their own threats to the heart of refining country, and the current forecasts have them reaching land within a couple hours of each other. There’s still plenty of uncertainty with the path and strength (as there always is with these storms) and it is even possible they’ll interfere with each other, but based on recent trends, don’t be surprised to see either or both of these systems blow up into a category three and threaten significant disruptions to oil and product supplies.  If nothing else, the combined size of the two storms will create headaches for petroleum import and export over the next week.

The good news for consumers is that the excess inventory on hand and slower than normal demand should act as a buffer to any potential supply disruption. Refiners and oil rigs in the path of the storm may choose to begin shutting operations earlier than they might in a normal year since the market is barely paying enough to keep them open anyways. 

So far, the futures market hasn’t seemed to notice the threat. Instead, it is following the lead of equity markets lower, but there’s a good chance someone in the hedge fund world will eventually see the weather channel today and realize half the country’s refining capacity is staring at a potential disruption, and we might get a third consecutive afternoon rally to wipe out morning losses as a result. RBOB futures in particular are on the cusp of a technical breakout after surviving multiple selloff attempts only to finish higher for five straight days, and with just 10 days left in the summer-grade September contract, don’t be surprised to see a spike if today’s early losses reverse course.

For anyone looking to top off their inventory ahead of the storms, please remember to fill your vehicles before you fill your bulk tanks. 

In other news, Saudi Aramco announced it was suspending its deal to build a $10 billion refining complex in China, the latest victim of the COVID demand fallout.

The California Energy Commission’s weekly stats showed the states production of gasoline and diesel ticked higher last week as NorCal plant increases more than offset a dip from various refinery issues at SoCal plants. 

Click here to download a PDF of today's TACenergy Market Talk.

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