New York — Refined product futures led the oil complex higher Tuesday amid anticipation of demand spikes ahead of Hurricane Florence's arrival on the East Coast later this week.
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NYMEX October RBOB settled 5.5 cents higher at $2.0142/gal and NYMEX October ULSD closed up 3.42 cents at $2.2520/gal. Gasoline futures were supported by anticipation of near- and long-term supply concerns.
"Usually this time of year start to see refining operations slow down, this can reduce the supply of product. That's part of it, the other part is evacuation orders from Florence," said Bill O'Grady, chief market strategist at Confluence Investment Management.
"There is some anticipation that the evacuation will burn a lot of gasoline," he said. "Anytime you get large evacuation orders like this, you tend to get short-term spikes."
Concerns that the storm would impact deliveries to the Northeast of refined products from the Colonial and Plantation Pipelines were bullish for the New York delivered NYMEX RBOB and ULSD contracts.
The Northeast is heavily dependent on both lines for refined products supplies.
Colonial Pipeline's 2.5 million b/d system extends from Texas to New Jersey, with Line 1 moving gasoline from Houston to Greensboro, North Carolina, and the parallel Line 2 extending all the way to New Jersey.
Kinder Morgan's 700,000 b/d Plantation pipeline ships refined products from Louisiana to the Washington DC area.
Both lines serve major metropolitan areas along the way. Both pipelines are able to operate in segments, so that if a portion in North or South Carolina were to go offline, the pipelines would be able to deliver product north.
But operating those northern segments depends on how much product is in tank north of an outage.
Kinder Morgan "can isolate segments of the system," said spokeswoman Melissa Ruiz. But "it all depends on what product is available at the tank farms on the system and what the impacts of the storm are to facilities."
The supply from tanks only lasts so long.
"If Lines 1 and 2 were down, Colonial could supply the Northeast from what's in tankage in Greensboro, for several days not weeks," said Colonial spokesman Steve Baker.
Hurricane Florence is currently a Category 4 storm and is projected to make landfall in the Carolinas late Thursday night or early Friday morning, according to the US National Hurricane Center. It is currently located over the Atlantic Ocean, south of Bermuda.
Regional ports were showing signs of preparedness. Wilmington, North Carolina, and Charleston, South Carolina, were at condition X-RAY around the NYMEX settle -- meaning they were open -- but condition Zulu was expected by 12 am EDT, according to the US Coast Guard.
Zulu condition means gale force winds are expected within 12 hours, and ports will close to commercial traffic.
Spot gasoline outages were reported at filling stations across South Carolina and North Carolina on Tuesday, but stocks at terminals remained healthy.
"We are seeing spot outages statewide," said South Carolina Petroleum Marketers Association executive director Michael Fields, "a lot of that is bull rushing and panic buying."
"It is a simple equation of supply exceeding demand," said North Carolina Petroleum & Convenience Marketers executive director Gary Harris. "Supply seems to be plentiful currently, it is just a question of getting transports loaded and stations refilled."
Gasoline inventories in the Lower Atlantic region -- Florida, Georgia, North Carolina, South Carolina, Virginia and West Virginia -- were 28.6 million barrels for the week ended August 31, well above the five-year average of 25.96 million barrels, according to US Energy Information Administration data.
Crude futures firmed on the back of uncertainty over the reliability of crude oil loading out of Libya following an attack on the National Oil Corporation's headquarters that has pushed up the market value for alternative sweet crudes in the Mediterranean basin.
ICE November Brent crude finished $1.69 higher at $79.06/b and NYMEX October crude settled $1.71 higher at $69.25/b. -- Chris van Moessner, firstname.lastname@example.org
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