US Energy Infrastructure Is About To Dodge Another Hurricane

It’s a mixed bag for energy markets to start the week with RBOB gasoline futures trading down around 1.5 cents, while ULSD futures cling to small gains and crude oil futures bounce back and forth around the break even level as it appears US energy infrastructure is about to dodge another hurricane. The last week of September sets up some key technical tests to see if last week’s rally can sustain upward momentum and break the energy complex out of the bear market on the weekly charts, while a huge amount of money is being bet that we’ll see lower prices ahead.

The NHC has not named the storm moving towards the Gulf of Mexico yet, but Accuweather is already forecasting it will become a category 2 or 3 hurricane before making landfall Thursday night, most likely named Helene. The current path keeps the storm to the east of the Gulf Coast oil production and refining assets, with most models pointing to landfall somewhere on the Florida panhandle. Some rig operators in the Gulf are already working to evacuate non-essential personnel as a precaution, so there will be some impact on oil production this week, but if the current path holds, there should not be any meaningful disruption to oil or refined products from this system. The worst cast scenario at this point would be if the storm stays on the eastern edge of the forecast cone which could lead to devastating flooding around Tampa Bay.

In addition to the Gulf Coast storm, the NHC is giving 70% odds of another storm being named as it moves off the African coast and crosses the Atlantic. Helene and Isaac are the next two names up on the storm list, and which system they’re applied to will depend on when each one gets named. Assuming Helene is first as it moves north towards the Gulf of Mexico, it appears that Isaac will develop far enough north to make it unlikely to get into the Gulf, but it could still pose a threat for the East Coast next week.

Meanwhile in the Pacific, Tropical Storm John is set to dump 1-2 feet of rain on the Southwest Mexican coastline home to the country’s 330mb/day Salina Cruz refinery, which is still trying to recover from a deadly fire 2 weeks ago.

Money managers had conflicting opinions on energy contracts last week as WTI, Brent and RBOB saw length added by the large speculative class of trader thanks primarily to healthy short covering, while distillate contracts saw more bets on lower prices pushing the net short position in ULSD and Gasoil to the lowest levels on record. The majority of the short covering came in the WTI contract as prices bounced off of a 17 month low, while Brent crude contracts still hold the 3rd most short interest on record, suggesting there could be more short covering to push prices higher if the recovery rally is able to gather any steam.

Valero reported an upset in a coking unit at its Port Arthur refinery Sunday, but the short duration of that event suggests impacts to operations are minimal. Delek reported a brief upset in a hydrotreater at its Big Spring TX refinery Friday, while P66 said flaring was ongoing at its Borger refinery for more than 24 hours over the weekend.

Marathon reported planned flaring at the Carson section of its LA-area refinery that is expected to last for the next 3 days due to startup/shot down procedures during maintenance.

Baker Hughes reported the count of US oil rigs held steady at 488 last week, while natural gas rigs decline by 1 to 96.