CRANBURY, N.J. (DTN) -- Oil futures nearest to delivery on the New York Mercantile Exchange and the Intercontinental Exchange's front-month Brent contract ended sharply lower Thursday, giving back Wednesday's gains as worry over hurricane-caused supply disruptions fade amid a downgraded Hurricane Florence and concern over lost demand because of the storm emerges.
After rallying for two days, oil futures pulled back from Wednesday's high settlements, and erased all of Wednesday's advance and some of Tuesday's gains after Hurricane Florence was downgraded from Tuesday's category 4 status to category 2.
The National Hurricane Center at 3 p.m. EDT reported maximum sustained winds of 105 miles per hour (mph), with Hurricane Florence 105 miles southeast of Wilmington, North Carolina, and 160 miles east of Myrtle Beach, South Carolina. Hurricane Florence is expected to make landfall along the Carolina coastline Friday morning, and linger over South Carolina.
On Tuesday and Wednesday, oil futures gained on short-covering over concern that supply movement along the Colonial and Plantation pipelines could be disrupted by flooding or lost power. Colonial Pipeline, a 2.6 million barrel per day (bpd) system that delivers gasoline and distillate fuels from the Gulf Coast refining center to locations in the Southeast, Mid-Atlantic and lower Northeast, said Thursday that product movement remains normal. The pipeline operator said it is prepared to deliver large generators to pumping stations should Hurricane Florence cause power outages.
There are no oil refineries in the targeted area, and there are reports distribution fuel terminals in harm's way are set to close in advance of the storm's landfall. Ports in the targeted region have closed.
Orders earlier this week for 1.5 million residents to evacuate the area along with consumers topping off tanks created a spike in gasoline demand in the area, with reports that some retail sites ran out of the motor transportation fuel.
However, the sharp jump in demand is seen as an isolated event, with Hurricane Florence expected to force school, business and government closings. Industrial Info Resources reports "nearly 850 industrial plants are in in the most powerful path of the storm, while another 1,840 industrial plants are projected to be in the outermost bands."
"Several large steel mills and related industry facilities are closing in advance of the storm," said IIR. "Most large industrial complexes plan to remain idle through the weekend, with restarts depending on power restoration and staffing resources early next week."
These closings should reduce both gasoline and diesel demand.
The Energy Information Administration reports the six Lower Atlantic states accounted for 17% of the country's gasoline demand and 14% of the consumption of ultra-low sulfur diesel fuel in 2017. On Sept. 7, the region's gasoline stocks held a 10% surplus against the comparable period a year ago and distillate fuel inventory was 5% below the average.
NYMEX October West Texas Intermediate futures settled down $1.78 from a nearly eight-week spot high settlement to $68.59 per barrel. ICE November Brent futures slid $1.56 from a 3-1/2-month spot high settlement to end at $78.18 bbl.
NYMEX October ULSD futures, which also ended Wednesday's trade at a 3-1/2-month high settlement on the spot continuation chart, settled down 3.42 cents at $2.2235 gallon. NYMEX October RBOB futures settled 4.19 cents lower at $1.9929 gallon.
Brian L. Milne can be reached at firstname.lastname@example.org
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