CRANBURY, N.J. (DTN) -- October oil futures traded on the New York Mercantile Exchange settled lower Friday, with a selloff emerging in morning trade as the market envisions a sharp decline in gasoline demand due to Hurricane Irma, which is occurring as oil refineries in Texas continue to recover from the devastation caused by Hurricane Harvey which slammed into the Texas coastline near Corpus Christi two weeks ago.
The effects of Harvey knocked offline or forced run cuts at 20 refineries, idled pipelines, shut terminals, and caused a supply crunch throughout the Southeast, Mid-Atlantic and parts of the lower Midwest. "The outcomes from Hurricane Irma are likely to be very different. While Hurricane Harvey impacted a major source of U.S. transportation fuels supply, demand in unaffected areas remained intact. Irma, which is projected to impact Florida and potentially the Eastern Seaboard, will likely disrupt demand centers," said the Energy Information Administration this afternoon.
Gasoline demand did fall off hard because of Harvey, with the EIA reporting gasoline supplied to the primary market down 683,000 bpd during the week-ended Sept. 1.
Texas has the second largest population in the United States, while Florida is the fourth largest. However, Irma is seen moving north through virtually all of Florida and into the Southeast.
Irma, the most powerful storm over the Atlantic ever recorded, is now a category 4 hurricane with maximum sustained wind speed of 155 miles per hour, and expected to sustain that intensity as it nears southern Florida, with a Saturday night landfall forecast.
"Irma is likely to make landfall in Florida as a dangerous major hurricane, and will bring life-threatening wind impacts to much of the state regardless of the exact track of the center," said the National Hurricane Center.
Heavy rain that could cause flash flooding is possible in Georgia, South Carolina and western North Carolina, early next week. In their afternoon update, NHC said "Jose remains a powerful hurricane over the central Atlantic" with maximum sustained wind speed of 150 mph. Jose is tracking Irma's path, while Hurricane Katia is moving along the eastern coast of Mexico in the Gulf of Mexico with maximum sustained wind speed of 105 mph.
As three hurricanes swirl, on Thursday night, a magnitude 8.0 earthquake struck just offshore Mexico's western coast, with multiple aftershocks following including one at a 6.2 magnitude.
NYMEX October RBOB futures settled down for the sixth straight session, ending 1.34cts lower at $1.6476 gallon, while 1.9cts lower on the week. In contrast to gasoline, with the transportation fuel's peak demand season in the rearview mirror, October ULSD futures rallied 14.34cts this week although declined 2.04cts on the session with a $1.7657 gallon settlement. October ULSD futures spiked at a $1.7983 gallon 26-1/2 month high on the spot continuous chart before reversing lower in morning trade.
Diesel fuel is expected to see increased consumption amid repairs in the aftermath of this season's hurricanes. Diesel fuel is primarily consumed by the commercial and industrial sectors of the U.S. economy, with gasoline a retail commodity.
Distillate demand for the week-ended Sept. 1 increased 153,000 bpd to 4.063 million bpd, EIA reported Thursday.
This afternoon, the Commodity Futures Trading Commission in its Commitment of Traders' report showed noncommercial traders expanded net-long positions to seven-month highs through Tuesday's (9/5) close for both RBOB and ULSD futures. While profit taking would define the decline for ULSD futures, long liquidation by speculators is seen for the RBOB contract.
After rallying to a $49.42 bbl one-month high on the spot continuation chart on Wednesday amid restarting refineries, NYMEX October West Texas Intermediate futures swung to a $1.61 loss with a $47.48 bbl settlement, while down a modest 39cts from prior Friday.
The lower close came despite continued weakness in the U.S. dollar, which again fell to a fresh two-year nine-month low Friday.
The dollar has come under heavy pressure as low inflation is seen staying the hand of the Federal Reserve in raising the federal funds rate, with the market previously expecting the Fed to hike the rate in December. Worries over the damage inflicted by major hurricanes are also weighing on the dollar, as is heightening tension with North Korea.
Moreover, the dollar is weakening against the euro and yuan, with the European Central Bank on Thursday signaling that it would begin tapering its monetary stimulus efforts in October. Economic data from China has also been robust, albeit coming in front of leadership changes and a Communist Party meeting in October. China early session reported higher than expected imports in August, up 13.3% on the year, with exports last month gaining 5.5% from month prior.
November Brent crude on the IntercontinentalExchange remains strong, albeit settling down 71cts at $53.78 bbl after reversing from a $54.87 nearly five-month high on the spot continuation chart. On the week, Brent futures rallied $1.37, climbing as demand for crude by Europe and Asia soar following lost refining output in the United States.
Brent's premium to WTI widened to a better than two-year high at $6.31 bbl at settlement.
Brian Milne can be reached at email@example.com
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