OIL FUTURES: Refined product prices surge as USGC refineries close ahead of Hurricane Laura

New York — Refined product futures settled higher Aug. 25 amid a bevy of refinery closures in southeastern Texas and southwestern Louisiana ahead of Hurricane Laura's arrival in the region later this week.

NYMEX September RBOB climbed 2.88 cents to settle at $1.3969/gal, the highest front-month settle since March 5, and September ULSD moved 1.25 cents higher on the day to $1.2601/gal.

Approximately 1.8 million b/d in US oil refining capacity, or nearly 18% of total US Gulf Coast refinery capacity, is slated to come offline in the coming days as operators shutter plants ahead of the storm

"There is no doubt that this storm will have an impact across the country with gasoline prices," Price Futures Group senior market analyst Phil Flynn said. "Add to this the expected drawdown in inventories across the board tonight, and the stage set for big move [in prices]."

Motiva said it will close its more than 600,000 b/d refinery and chemical operations in Port Arthur, Texas, while ExxonMobil is starting to shut down its 366,000 b/d refinery in neighboring Beaumont. Total is closing its 225,500 b/d refinery nearby in Port Arthur on Aug. 25 ahead of the landfall that could come as early as the evening of Aug. 26.

Valero also said on Aug. 25 it will shut down its 335,000 b/d Port Arthur Refinery in advance of Laura.

Earlier in the day, Phillips 66 said it is shutting down its roughly 250,000 b/d Lake Charles Refinery in Louisiana.

Hurricane Laura is forecast to strengthen to major hurricane status as it approaches the Texas-Louisiana border late on Aug. 26, according to the US National Hurricane Center.

RBOB futures had traded as high as $1.4395/gal on Aug. 25, but prices pulled back from these highs amid concerns of post-storm demand destruction, analysts said.

Still, the steep run up in gasoline prices in recent days has significantly widened the backwardation in prompt RBOB structure. Front-month RBOB settled at a 12.74 cent/gal premium to the second-month contract Aug. 25, the widest backwardation since August 2019.

While the refinery closures are likely to weigh on crude demand in the near term, crude prices were still supported by operators shutting in Gulf of Mexico production ahead of the storm.

NYMEX October WTI settled up 73 cents at $43.35/b and ICE October Brent was up 73 cents on the day at $45.86/b.

As of midday Aug. 25, US Gulf upstream operators had shut-in about 1.559 million b/d of oil from platforms in the region, or about 84% of the region's crude production, the federal Bureau of Safety and Environmental Enforcement said in its daily update.

"Refinery closures alongside massive evacuations near Galveston and Houston mean fuel shortages could occur," said Edward Moya, senior market analyst with OANDA. "With over 80% of oil production halted in the Gulf, energy traders will pay close attention to how much damage happens and when can workers return."