(Bloomberg) — Gasoline futures surged as Hurricane Laura rattled toward the U.S. Gulf Coast, where refiners are bracing for the storm and shutting down operations.
U.S. gasoline futures jumped to the highest in more than five months and crude oil in New York rose in sympathy. The storm is expected to make landfall on Thursday along the Texas-Louisiana coast as a Category 3 hurricane, according to the National Hurricane Center. More than 80% of oil output in the Gulf of Mexico has now shut and refiners including Exxon Mobil Corp. and Citgo Petroleum Corp. have reduced operations or closed plants in preparation.
“Products are up much more than crude oil because this is a refinery event,” said Michael Hiley, head of over-the-counter energy trading at New York-based LPS Futures. With a significant portion of processing capacity in Laura’s track, “it’s a big deal.”
Goldman Sachs Group Inc. estimates that 4 million to 5 million barrels a day of refining capacity is in the Gulf Coast storm’s broader path. Exxon’s Beaumont and Baytown refineries in southeast Texas and Citgo’s Lake Charles plant in Louisiana are among the latest to join the string of refineries shutting ahead of Laura.
Refinery closures from companies in preparation for the potential hurricane could shut in more than 1 million barrels a day of processing capacity before the storm threat passes.
Still, the hurricane will likely only have a short-term impact on prices with this year’s lackluster summer driving season nearing an end and a pickup in consumption remaining questionable due to the coronavirus pandemic.
“Even if the resumption of offshore production were to be slow, increasing the loss of supply, there is a large inventory buffer that precludes a sudden tightening of crude oil availability to refiners when they resume their operations,” said Harry Tchilinguirian, head of commodity markets strategy at BNP Paribas SA in London.
U.S. crude stockpiles are currently at the highest seasonal level in decades, according to Energy Information Administration data.
As the storm menaces fuel supplies in the Gulf Coast, the structure of the U.S. gasoline market has shifted. The premium in Nymex gasoline futures for September against October strengthened as much as nearly 40% on Tuesday, a sign that traders expect supplies to be scarcer than previously thought.
Meanwhile, cash-market gasoline for Colonial Pipeline loading outside Houston rose to the highest in eleven months on Tuesday as retailers sought to secure supplies ahead of Laura.
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