RBOB Futures Spike to 25-month High

NEW YORK (DTN) -- New York Mercantile Exchange spot-month oil futures settled mixed with West Texas Intermediate crude falling for the second straight day to a five-week low while the RBOB contract rallied to a $1.8082 gallon fresh 25-month high. ULSD futures also jumped, with oil products futures climbing on refinery outages caused by Hurricane Harvey.

"The best estimate is that crude runs have been cut by over 2 million bpd [by the refinery shutdowns], putting pressure on crude prices and at the same time causing a spike in gasoline prices since those barrels won't be turned into products," said analyst Andy Lipow, president of Lipow Oil Associates.

The refinery outages represent about 12% of the nation's refining capacity. Analysts said ExxonMobil's 348,600 bpd Beaumont refinery and Marathon's 451,000 bpd Galveston Bay plant are offline due to a lack of crude.

Lipow added that, "There was some report Corpus Christi refinery plans to restart, but it has incurred significant damage and it will take weeks to get back online."

Harvey has been downgraded to a tropical storm after devastating Houston and its suburbs, but is now forecast to make another landfall as early as Wednesday at the Texas-Louisiana border, according to the National Hurricane Center. That border area is home to several oil refineries that are now threatened by flooding.

State and federal officials said rainfall along the Texas coast would continue through Wednesday and water levels in rivers, streams and reservoirs around Houston are still rising, worsening the humanitarian crisis in the region.

The Bureau of Safety and Environmental Enforcement also reported today that 13.84% of the 737 manned offshore platforms remained shut-in, down from 21% on Friday when the storm made landfall in Texas near Corpus Christi as a Category 4 hurricane.

The supply disruptions are likely to render much of the weekly oil data from the American Petroleum Institute and the Energy Information Administration useless gauges of market fundamentals.

"[The storm] will lead to revisions in the EIA data for the next few weeks," said analyst Jason Schenker of Prestige Economics. "The market will ignore EIA data and blame every price move on the storm," added Lipow.

The September RBOB futures contract rallied 7.10cts to $1.7833 gallon at settlement, settling at an 18.14cts premium to October RBOB futures, which ended up 3.06cts at $1.6019 gallon. The wide RBOB backwardation reflects concern about short-term supply.

September ULSD futures settled 3.03cts higher to $1.6655 gallon, and traded at a $1.6824 six-month high on the spot continuation chart, and the October contract gained 2.31cts to $1.6540 gallon. The NYMEX October WTI crude contract settled 13cts lower at $46.44 bbl, off a five-week spot low at $45.76 bbl. October Brent crude contract on the ICE platform settled 11cts higher at $52.00 bbl, reversing off a one-week low of $51.36 ahead of its expiration Thursday afternoon. The November Brent contract settled up 24cts at $51.66 bbl. The Brent crude premium over WTI expanded to a fresh two-hear high at $5.56 bbl.

Phil Flynn, an analyst at Price Futures, said the storm has boosted crack spreads--the profit margin for refining crude, which could incentivize refiners in other parts of the country to delay autumn maintenance.

George Orwel can be reached at George.orwel@dtn.com