RBOB Futures Hit 6-Month High

Liubov Georges
By  Liubov Georges , DTN Energy Reporter

WASHINGTON (DTN) -- At the beginning of the new trading week, nearby-delivery-month oil futures on the New York Mercantile Exchange and Brent crude on the Intercontinental Exchange pushed higher, with the spot-month RBOB contract surging as much as 7% on concerns that flooding from storms in the U.S. Gulf of Mexico would disrupt refinery operations in the region, potentially tightening fuel supplies.

Motiva Enterprises on Monday began preparations to shut its 607,000-barrel-per-day (bpd) Port Arthur, Texas, refinery as precautionary measures before back-to-back storms, Tropical Storm Marco and TS Laura, hit the U.S. Gulf Coast. Sources interviewed by Reuters said the process would likely take up to two days. Exxon Mobil, Valero and Royal Dutch Shell plan to maintain their refinery operations uninterrupted this week but will closely monitor the developing storms. Following the reports, RBOB futures spiked to their highest trade since early March as traders assessed the possible damages to the GOM refiners vulnerable to the flooding. Some caution, however, that any price boost will likely be short-lived as gasoline inventories sit well above five-year average and demand remain muted.

Even still, GOM operators shut in more than 80% of the region's crude output, according to the latest data from the Bureau of Safety and Environmental Enforcement, cutting more than 1 million bpd offshore production. Based on data from offshore operator reports, personnel have been evacuated from a total of 281 production platforms, or 43.7% of the 643 manned platforms in the GOM.

TS Marco is expected to weaken to a depression later Monday. The storm is expected to become post-tropical within 24 hours.

TS Laura has also slightly weakened due to land interaction but should rapidly strengthen in the Gulf, with a low confidence track between Texas and Louisiana. The storm is forecast to strike the Texas/Louisiana coast by Thursday, Aug. 27, as a Category 2 hurricane with 105-mile-per-hour winds and heavy rain. Some meteorologists say the storm could strengthen to a major hurricane before it makes landfall.

In broader markets, U.S. equities extended their recent rally into the fifth straight week on Monday, sending S&P 500 to all-time highs and Dow Jones Industrial surging as much as 300 points. Monday's gains were mostly spurred by the positive news on coronavirus plasma treatment that is said to cut mortality rate by as much as 35%.

On Sunday, the Financial Times reported that the Trump administration is also considering providing "emergency use" approval of the experimental coronavirus vaccine from AstraZeneca and Oxford University in October.

The U.S. dollar pared earlier losses to pressure West Texas Intermediate futures in afternoon trade Monday. WTI futures for October delivery settled 28 cents higher at $42.64 per barrel (bbl), and spot-month international benchmark Brent crude gained 78 cents to settle above $45 per bbl. ULSD September futures surged 3.96 cents to $1.2476 per gallon, and the front-month RBOB September contract spiked 8.30 cents to a six-month spot high $1.3671 gallon.

Liubov Georges can be reached at liubov.georges@dtn.com

Liubov Georges