Wednesday, September 12, 2018

Oil, gasoline prices rise as storms approach US

Katrina in the Gulf
  • Oil rallied on worries U.S. sanctions on Iran will hurt global oil supplies, and gasoline rose as a series of hurricanes and storms headed toward the U.S. or Gulf of Mexico.
  • Hurricane Florence was a Category 4 hurricane barreling toward the Carolinas, but it is not as likely to impact oil and gas directly.
  • An as-yet-unnamed storm, likely to develop into a tropical depression, and Tropical Storm Isaac could both potentially head into the Gulf of Mexico, where oil production and refinery facilities are located.
  • Strategists say it appears more likely the administration will succeed in taking large supplies of Iranian oil from the market, as South Korea and Japan indicated they would no longer buy it.

Oil rallied on concerns U.S. sanctions on Iran could hurt global supply, while gasoline rose as traders watched multiple storms approaching U.S. shores and the Gulf of Mexico.

Hurricane Florence, a Category 4 hurricane, barreled toward the Carolinas Tuesday. But other smaller storms, such as Tropical Storm Isaac, are potentially more worrisome for the oil and gas industry, because they have the chance of moving into the Gulf of Mexico, where there are energy production and refining operations. Gasoline prices also rose on concerns about issues at the Phillips 66 Bayway refinery, affected by a power outage and flooding in New Jersey.

Crude, however, was more affected by signs President Donald Trump's sanctions on Iranian oil may succeed in removing a large amount of Iran's exports from the market once they take effect in November.

"It looks like South Korea and Japan are going to zero purchases. That's in line with the administration's demands," said John Kilduff, partner with Again Capital. "Both those countries stepped up to buy more U.S. crude oil."

West Texas Intermediate crude oil futures for October jumped 2.5 percent to $69.25 per barrel, while Brent crude surged 2.2 percent to $79.10. RBOB gasoline futures for October delivery jumped 2.2 percent to $2.00 per barrel.

"The market is getting concerned that those sanctions will be very effective in taking Iranian oil off the market, at the same time wondering if there are going to be other outages in Venezuela, Libya and can other producers make up supplies," said Andrew Lipow, president of Lipow Oil Associates.

As for gasoline prices, Lipow said there should not be much impact from Florence on gasoline unless it creates flooding or power outages that impact pumping stations for the Colonial Pipeline, which runs through the Carolinas and carries gasoline to the Northeast.

Platt's said that when Hurricane Irene came close in 2011, Colonial Pipeline made tentative plans to shut down but didn't have to — but that this storm looks worse. Platt's said Colonial issued a statement to shippers Monday, saying it was preparing for potential impacts later this week.

"Gasoline is getting helped by a couple of things. You get a sugar rush of demand when you get massive evacuations. The problem is you borrow from demand today from next Thursday when you have no demand. Hurricanes are demand destroyers," said Tom Kloza, global head of energy analysis at Oil Price Information Service. "I think people are worried there are so many areas at risk of flooding that are contiguous to the Colonial pipeline."

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