Fueling Strategy: Please fill as needed today/tonight – Be Safe

NYMEX Crude $ 46.57 DN $1.3000
NY Harbor ULSD $1.6352 UP $0.0129
NYMEX Gasoline $1.7123 UP $0.0457

NEWS
Oil futures dropped Monday to their lowest finish in about a month, with traders expecting refinery shutdowns in the Gulf of Mexico region due to storm system Harvey to cause an excess in crude supplies.

As of late Monday morning, about 331,370 barrels of oil a day, or 18.9% of Gulf of Mexico oil output, were shut in, according to an update from the Bureau of Safety and Environmental Enforcement.

On the production side, Harvey hasn’t been quite as bad” as previous major hurricanes such as Katrina and Rita in 2005, which had a combined peak production loss of around 1.5 million barrels a day, said James Williams, energy economist at WTRG Economics. But “on the refining side, because of the rains and flooding, this is a big one,” Williams said. Futures prices for gasoline settled at their highest level since mid-April after now-Tropical Storm Harvey knocked out almost 15% of the nation’s refinery capacity, with further disruptions likely to come.

October West Texas Intermediate crude fell $1.30, or 2.7%, to settle at $46.57 a barrel on the New York Mercantile Exchange, with prices marking their lowest settlement since July 24, according to FactSet data.

Exxon Mobil Corp.’s Baytown refinery, one of the largest in the U.S. with capability to process up to 584,000 barrels of crude oil a day, was shut because of the storm. The refinery feeds fuel into pipelines and barges that move it across the southeastern U.S. and up the East Coast. “With many refineries shut in, there is no place for some of the oil coming from unaffected areas like the Permian to go besides storage,” Brian Youngberg, senior energy analyst at Edward Jones, told MarketWatch. “While some oil production is down, it is less than the impact on the refineries given the Houston and Corpus Christi areas each have several large refineries.” Youngberg said the situation “could get worse this week before it gets better, especially if the impact spreads into Louisiana with the storm moving that direction.” It can take weeks or even months to get new electrical equipment and other parts installed to repair damage from flooding. Harvey’s path cuts right through the heart of the U.S. oil infrastructure, with the Texas coast being home to nearly 30% of the country’s refining capacity.

Youngberg, meanwhile, pointed out that Brent crude has found some support from reduced flow out of Libya, contributing to the price differential between WTI and Brent, which topped $5 a barrel Monday. The price differential may actually be bullish for WTI prices, said Jay Hatfield, portfolio manager of InfraCap’s MLP exchange-traded fund as the differential is “likely to close once the effects of the hurricane dissipate over the next few weeks.”

Oil price Monday failed to get a boost from a report in The Wall Street Journal that Saudi Arabia and Russia have discussed the possibility of extending their production-cut agreement through June of next year. Investors will also have their eyes on U.S. stockpiles data this week, which could potentially cushion some of the impact on reduced supplies caused by Harvey. U.S. refiners produced record amounts of fuel during the summer.

Have a great day,

Loren R. Bailey, President
Fuel Manager Services Inc
“Serving the Trucking Industry Since 1992”