Gasoline Rises With Oil Little Changed as Ida Douses Refineries

Source: By Anthony Di Paola, Bloomberg • Posted: Monday, August 30, 2021

U.S. gasoline futures rose after Tropical Storm Ida hit Louisiana, disrupting processing facilities across the state. Oil was little changed as offshore production platforms may have escaped significant damage and the OPEC+ producers’ cartel is expected on Wednesday to endorse a planned supply increase.

Gasoline for October spiked more than 4% in New York before paring its advance, while West Texas Intermediate crude also gave up earlier gains. Last week, WTI rallied 10% as investors wagered global demand would recover from the setback posed by the spread of the delta coronavirus variant.

London trading was expected to be lighter due to a holiday in the U.K.

U.S. gasoline for October delivery climbs in wake of Hurricane Ida

“We expect a more rapid return of oil production than refining production in the region,” Goldman Sachs Group Inc. analysts wrote in a note Monday. It’s too early to determine how long refineries in the region will remain shut, they said.

Ida was downgraded from a hurricane after making landfall even as high winds and heavy rains battered industrial sites, swelled rivers and flooded residential areas. Oil markets were buffeted last week as traders anticipated the storm’s effects.

Both crude oil and gasoline have been hit by volatile trading this month as investors weighed the challenge to consumption posed by the resurgence of the pandemic in parts of Asia, the U.S. and Europe. This week, traders will focus on the fall-out from Ida, as well as the likelihood that the Organization of Petroleum Exporting Countries and its partners will go ahead with an increase in output when they meet.

Read: New Orleans Goes Dark as Hurricane Ida Slams into Louisiana

“The market will be looking at the product stocks and the risks of onshore damage from Ida,” said Matt Stanley, a senior broker at Star Fuels in Dubai. “Now that the storm has made landfall, it looks like the worst is past for the offshore platforms and over the next couple of days operators can look at getting those back up.”

Gulf of Mexico producers shut in more than 1.7 million barrels a day of crude output — about 15% of the total for the U.S. — ahead of the storm. The focus for crude markets is now shifting back to the virus and OPEC+, Stanley said. European fuel stocks can help make up for shortfalls from the U.S. refinery closures, Goldman Sachs said.

Prices:
  • The September gasoline contract, which expires Tuesday, gained 2% to $2.3189 a gallon on the New York Mercantile Exchange at 4:20 p.m. in Dubai.
    • October gasoline was up 1.4% at $2.1483.
  • WTI for October delivery was little changed at $68.77 a barrel on Nymex.
  • Brent crude for October settlement rose 0.1% to $72.75 a barrel on ICE Futures Europe exchange.

Refiners including Valero Energy Corp. shut about 12% of U.S. oil-processing capacity as a precaution ahead of the Category 4 storm, which has stronger winds than Katrina in 2005, though isn’t as big. Colonial Pipeline Co., the operator of the largest fuel-distribution system from the refining centers in Texas and Louisiana to customers across the eastern U.S., idled its main network.

Gasoline prices in the southeast U.S. could climb in the coming weeks if refineries suffer extensive damage or can’t get power and are forced to stay shut for an extended period, adding to the price inflation hitting Americans. Traders in Europe have already been preparing to fill any gap in supplies at New York Harbor, provisionally chartering tankers. Still, those would take as much as two weeks to cross the Atlantic.

“For a Category 4, you could be looking at four to six weeks or more of downtime for the refineries,” said Andy Lipow, president of Lipow Oil Associates LLC in Houston.

Ida Roars Toward Louisiana With Near Record-Setting Winds

Storm surge begins to encroach in Louisiana ahead of Hurricane Ida, on Aug. 29.

Photographer: Luke Sharrett/Bloomberg

Ida, which came ashore about 60 miles (97 kilometers) south of New Orleans, drove up ocean levels as much as 16 feet (4.9 meters). The hurricane’s 150-mile-per-hour winds tie Louisiana’s record set by Laura in 2020 and a 19th century storm.

Related coverage:
  • Oil and natural gas explorers in the Gulf of Mexico and Louisiana refineries have shut output as Hurricane Ida crashed ashore.
  • U.S. motorists who’d been expecting an end-of-summer relief for gasoline prices should start bracing for higher costs.
  • The head of Libya’s National Oil Corp. was suspended pending a probe into whether he violated policy, the oil minister said.

— With assistance by Simon Casey, David Marino, and Elizabeth Low

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