The oil market and the crack spreads, both diesel and gasoline, are riding a wave of fear this morning. Fear of Hurricane Isaias, soon to be on the doorstep of the northern Gulf Coast, and fear that crude movement through the Strait of Hormuz is slipping again.
Fox Weather has the track running just offshore for now, heading east-northeast, with landfall looking like late Friday or early Saturday somewhere between the Alabama coast and the Florida Panhandle, Gulf Shores to Pensacola in the current cone.
They report that Isaias is already a hurricane, the first of the Atlantic season, with winds near 80 mph and pressure down around 979 millibars, and it is still expected to strengthen into a strong Category 1 or a Category 2 before it comes ashore.
So far what we are seeing is precautionary, not a full shutdown. Operators have pulled non-essential crews, and as of yesterday’s Marine Minerals Administration count about 512,000 barrels a day of Gulf of America oil was shut in, roughly a quarter of offshore output, along with about 16 percent of Gulf natural gas. Shell, Chevron and BP are among the names evacuating platforms. Refineries are getting ready.
The overnight shift in the track toward Alabama and the Panhandle takes some of the heat off the big Mississippi River plants, Garyville, Norco, Chalmette, Meraux, but Andy Lipow repoted that we still have about 2.7 million barrels a day of refining capacity in or near the broader risk zone. In a world where diesel is already scarce, you do not need a direct hit to scare the cracks.
And the cracks are scared. Diesel and gasoline crack spreads are rising with the storm and with the Strait. European gasoil jumped about 6 percent yesterday, and prompt diesel cracks have been pushing back toward $80 a barrel. At the pump, AAA has diesel near $6.28 a gallon and regular gasoline around $4.36. That is not a storm premium. That is a world that was already tight before Isaias showed up on the map.
Oil is also worried about Hormuz, even as Europe tries to calm the products market with stock releases. Brent is back above $105 this morning, up about 5 percent, with WTI in the low $90s. Kpler counted just seven tankers through the Strait on Tuesday, less than half the recent average and the lowest since late July, after a record run of attacks, ten tankers hit between September 28 and October 4. Iran is still talking tough. There is chatter about Oman as a channel for some kind of deal and safe passage, but the market is trading the ships that are not moving, not the press release. The IEA is trying to speed up barrels already promised earlier this year, on the order of 100 million barrels if governments actually deliver, and France is looking at releasing about 10 million barrels of diesel from strategic stocks. Helpful at the margin. Not a fix if Hormuz crossings stay this low and a hurricane clips Gulf supply at the same time.
We have talked about Iran talking, but oil is on the attack, and Saudi Arabia is ramping up the response as the risk premium comes back into the market. A Houthi military spokesperson warned workers at Saudi oil facilities to stay away from sites the group says are targets, and renewed the warning to airlines and airports that Saudi airspace is a theater of operations.
Smoke was reported rising from a stationary aircraft at Riyadh’s King Khalid International Airport, according to a witness and three people briefed on the matter, after the Houthis claimed another strike on the capital’s airport and Saudi authorities said earlier attacks on Riyadh and Abha airports killed three people and wounded dozens.
That is the supply-side scare the market has been waiting on, even as the diplomatic track keeps moving. Iran’s foreign minister, Abbas Araghchi, said negotiations are ongoing, messages are being exchanged through mediators, and Tehran is still reviewing U.S. views on Iran’s seven-day proposal and should respond in a few days.
At the same time, Iran’s atomic energy chief said the country will not back down on enrichment, which is the red line Washington has already flagged. Talks can cool the headline, but missiles on Saudi airports and threats against oil sites are what keep the barrels bid.
Natural gas is rising on the storm too. November futures settled near $3.20, up about 3 percent, on the Gulf shut-ins and on lower Lower-48 output. Offshore gas is only a small slice of U.S. supply, so this is more psychology and timing than a structural hit, unless the storm hangs around the pipes and the LNG plants.
On the inventory side, yesterday’s EIA report was already friendly. Commercial crude fell 3.2 million barrels to 424.1 million, led by a 3.9 million barrel draw on the Gulf Coast, with refinery runs up at 92.7 percent. Distillate was basically flat and still tight. Gasoline built a touch. The market wanted a crude build and did not get one. Today the focus is less on a fresh EIA print and more on whether Europe’s stock release actually shows up in the water, and whether Isaias shuts in more barrels before landfall.
Download the Fox Weather app and keep it open. This track is still moving, the cone still covers a lot of steel, and the cracks will trade every wobble between now and Friday night. Also stay tuned to the Fox Business Network Invested in You! Call today to open your account 888-264-5665 or email me at
[email protected]Thanks,
Phil Flynn
Senior Market Analyst & Author of The Energy Report
Contributor to FOX Business Network
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