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Refinery explosion, approaching hurricane push refined products higher

New York — Refined products futures settled higher Monday as the market weighed news of a refinery explosion in New Brunswick, Canada, and the potential impact of an approaching hurricane in the Gulf of Mexico.

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Early on Monday reports of a fire and explosion at Irving Oil's 300,000 b/d Saint John refinery sent product futures higher. The refinery is a major supplier of gasoline to Atlantic Canada and New England, and futures contracts moved higher in the immediate aftermath of the news emerging.

But the market impact was partially muted by planned work being underway at the refinery, sources said. Futures prices slid into negative territory later in the session as the market weighed how much supply the incident could take offline.

A source familiar with refinery operations said the fire was in the hydrogen unit. Several sources said the plant had been carrying out a turnaround, with one adding that the crude distillation unit, residue fluid catalytic cracker and gasoline desulfurization units were shut October 1. There have been intermittent problems with the gasoline-making units in recent weeks, sources noted,

Product inventories in New England are ample. Regional gasoline stocks rose 306,000 barrels in week ended that September 28 to 4.638 million barrels, according to the latest US Energy Information Administration data. Diesel stocks rose to 6.327 million barrels, according to EIA, 2.417 million barrels above the year-ago level and the highest level seen since the agency began recording data in April 2004.

The potential for a demand bump ahead of Hurricane Michael's landfall later added support for prices. The storm was expected to enter the Gulf of Mexico on Monday evening and is forecast top make landfall along the Florida Gulf Coast as a major hurricane late on Wednesday.

The storm was also bullish for US crude futures. Although current forecasts show the storm avoiding major production and refining centers, any hurricane in the Gulf adds uncertainty to markets. BP and ExxonMobil said Monday they were evacuating personnel from key Gulf of Mexico producing platforms that may be at risk due to Hurricane Michael.

NYMEX November WTI settled 5 cents below its open at $74.29/b, and ICE December Brent was down 25 cents at market close at $83.91/b.

Crude futures headed to the downside early in the session due to signs that Iran may continue to export some crude after US sanctions take effect next month. Last week, Indian refiners said they will import at least 9 million barrels of crude from Iran in November, defying US calls for a complete cessation of Iranian exports. India was the second largest buyer of Iranian crude in September, data from cFlow, S&P Global Platts trade flow software, showed.

"We have a very nervous market, but it is consolidating as we get closer to the November cut off date," Price Futures Group Senior Market Analyst Phil Flynn said. "Regardless of whether India buys a few barrels we will still have a very tight market."

Washington has exerted significant pressure on buyers of Iranian crude in recent weeks, but on Friday officials suggested they may be open to issuing sanctions waivers.

"Reports of US waivers for sanctions brought the market under selling pressure initially, but it doesn't seem to have lasted," Tradition Energy analyst Gene McGillian said.

Early on Monday, Brent futures dipped as low as $82.66/b and WTI traded down to $73.34/b. -- Chris van Moessner, christopher.vanmoessner@spglobal.com

-- Edited by Keiron Greenhalgh, newsdesk@spglobal.com