RBOB Futures Skyrocket After Harvey

NEW YORK (DTN) -- New York Mercantile Exchange spot-month oil futures settled mixed Wednesday afternoon with West Texas Intermediate and the IntercontinentalExchange Brent crude oil contracts lower, while NYMEX RBOB and ULSD contracts rallied after Tropical Storm Harvey left the oil infrastructure in Texas reeling and threatened to do the same in Louisiana.

The rally for gasoline has been relentless -- up 13% this week. The September RBOB futures contract posted a fresh 25-month high of $1.9231 gallon as major oil refineries in southeast Texas were shut by the deadly storm. ULSD futures gave up most of its early gains at the close of regular trade.

While some refiners were beginning to restart operations in Texas as the storm moved into La., others were shutting operations, causing a further reduction in available refining capacity. Motiva, Total and Valero shut their Port Arthur, Texas, refineries, although Valero was also preparing to restart its Corpus Christi refinery and Marathon was restarting its Texas City plant.

Flooding from Harvey has shut nearly 4.0 million bpd of U.S. refining capacity, limiting demand for crude oil while raising the risk of short-term product shortages, said analyst Kyle Cooper at ION Energy in Houston.

"A big chunk of refining capacity is down right now, but this gasoline rally is mostly due to fear, which is justifiable, rather than actual fuel shortage since we still have about 229 million barrels of gasoline in storage," said Cooper. "Moreover, most of the refineries have not suffered structural damage, so they can be restarted within two weeks rather than two months as we saw with Hurricanes Katrina and Rita over a decade ago."

Cooper said the storm will skew oil data by the U.S. Energy Information Administration for several weeks because data reporting conditions are currently not optimal due to the flooding in the Houston area. Wednesday, EIA reported another steep weekly crude stock draw and modest stock builds for refined products, data that were largely unheeded by the market.

EIA showed a 5.4 million bbl crude stock draw during the week-ended Aug. 25, the ninth straight weekly decline, to a fresh 19-month low of 457.8 million bbl. The report also showed crude oil production flat, up 2,000 bpd during the week-ended Aug. 25 to a 9.53 million bpd better than two-year high.

On products, EIA showed gasoline stockpiles rose nearly 35,000 bbl while distillate supplies increased by 748,000 bbl during the week reviewed.

The September RBOB futures contract climbed 10.14cts to $1.8847 gallon at settlement, off a $1.9231 gallon better than two-year high, and the October RBOB contract settled up 3.56cts at $1.6375 gallon. The September ULSD contract settled 0.83cts higher at a $1.6738 gallon settlement, paring gains after posting a $1.7161 gallon nearly eight-month spot high, and the October contract settled up 0.14cts at $1.6554 gallon.

The October WTI crude contract settled down 48cts to $45.96 bbl. October Brent crude contract on the IntercontinentalExchange tumbled $1.14 to a $50.86 bbl settlement, near a better than one-week spot low of $50.71. The November Brent contract settled down 93cts at $50.73 bbl.

The September products contracts and October Brent contract will expire at the close of regular business on Thursday.

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