DTN Oil

WASHINGTON (DTN) -- Nearby month delivery RBOB and ULSD futures on the New York Mercantile Exchange settled Monday's session with sharp losses triggered by expectations Tropical Storm Idalia would likely disrupt holiday travel over the Labor Day weekend, with its path tracking along the Big Bend of Florida and southeastern Georgia, while the partial restart of Marathon Petroleum's Garyville refinery in Louisiana following a fire at two naphtha storage tanks further pressured products futures.

As of Monday afternoon, the 596,000-bpd Garyville refinery located on the Mississippi River between New Orleans and Baton Rouge continues to operate at reduced rates following a naphtha release and subsequent storage tank fire on Friday.

"A plan is being developed and evaluated to return the refinery to normal operations, when appropriate," said the refiner in an email sent to DTN. "An investigation will be conducted to determine the cause of the incident."

RBOB and ULSD futures jumped more than 5% on Friday in an initial reaction to reports suggesting the fire at the storage tanks shut down refinery operations without any clarity on a potential timeline for restart. Garyville is the third largest refinery in the United States and is configured to process a wide variety of crude oils into gasoline, distillates, fuel-grade coke, asphalt, and propane among other products. Prolonged disruption could have resulted in further destocking of product inventories that have fallen far below the seasonal five-year average.

Further pressuring the products complex, chances are increasing for Idalia to become a major hurricane as it enters the Gulf of Mexico tonight and makes landfall along the Big Bend of Florida. DTN Weather Ops forecast Idalia will track across southeast Georgia towards the South Carolina coast Wednesday into Thursday.

Storm surges will be a concern for much of Florida's Gulf Coast, especially in Big Bend. Heavy rainfall leading to flash flooding should also impact northern and central Florida into southeast Georgia and the Carolina coastline, with four to eight inches of rainfall expected. The storm surge will likely disrupt holiday travel over the Labor Day weekend leading to a weaker-than-usual end to an already soft summer demand season.

While no disruption is expected to U.S. Gulf Coast production, Chevron said in an email to DTN that the company has begun transporting nonessential personnel from its Blind Faith and Petronius platforms ahead of Idalia. The situation remains fluid.

In financial markets, investors are once again reassessing the path of U.S. interest rates after Federal Reserve Chairman Jerome Powell signaled that the central bank is prepared to lift interest rates further and keep them at a restrictive level until inflation falls to its 2% target. Powell, delivering the keynote address at the annual symposium in Jackson Hole, Wyoming, on Friday, said that further rate hikes will likely be required should inflation fail to moderate in coming months. Although headline inflation in the U.S. eased to 3.2% last month from its peak of 9.1% in June 2022, Powell warned that the risks of reacceleration are still embedded in the economy.

Following Powell's hawkish remarks, markets raised the odds for another 0.25% rate increase in the federal funds rate at the Federal Open Market Committee's Nov. 1 meeting, according to CME's FedWatch Tool. A majority of investors now expect the terminal rate to climb to a 5.5% to 5.75% target range by year's end.

The repricing of U.S. interest rates lifted the U.S. dollar index to a near three-month high at 104.385 on Friday against a basket of foreign currencies. The U.S. dollar softened on Monday to a 103.992 settlement, the second strongest settlement for the greenback since early June, limiting gains for the front-month West Texas Intermediate contract that settled the session at $80.10 bbl, up $0.27. The international crude benchmark Brent contract settled the session little changed at $84.42 bbl. NYMEX ULSD futures fell back $0.1038 from a seven-month high on the spot continuous chart to $3.2037 gallon, and NYMEX RBOB September futures slid $0.0807 to $2.7957 gallon.s on Venezuela in exchange for the re-start of democratic processes in the Latin American country of 28 million. Venezuela's oil production plunged to 450,000 bpd at its low in 2020 before recovering to about 800,000 bpd over the June-July period.

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