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Crude and gasoline futures both climbed to levels not seen since before the pandemic as Hurricane Laura rattled toward a key stretch of the U.S. Gulf Coast that is home to the nation’s greatest concentration of refining capacity.
U.S. gasoline futures jumped 2.1% and crude futures added 1.7% Aug. 25, bringing both contracts to the highest since early March. The storm is expected to make landfall late Aug. 26 or early Aug. 27 along the Texas-Louisiana coast as a Category 3 hurricane, according to the National Hurricane Center. More than 84% 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.
“The energy patch is facing a potentially cataclysmic situation in the next 48 hours,” in part as forecasts show “the storm on a collision course with some of the largest refineries in the world,” Bob Yawger, director of the futures division at Mizuho Securities USA, said in a note.
The spread between the September and October gasoline contracts rose to as high as 15 cents per gallon during the session, the widest backwardation in a year. The price action “implies the market is worried about extreme shortage,” Yawger wrote.
Some of the largest U.S. refineries are shutting in advance of Laura, affecting nearly 3 million barrels a day of capacity along the U.S. Gulf Coast, according to a Bloomberg calculation. That’s about one third of the Gulf Coast refining capacity, according to figures from Lipow Oil Associates.
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.
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