Fuel Prices Rise After Storms Shut Down Refineries
September 20, 2019
Gasoline and diesel fuel prices rose significantly but WTI crude oil prices closed nearly flat yesterday after news of severe flooding in Texas due to Tropical Storm Irma shutting down refineries. The Sabine Ship Channel, a major Southwest Texas waterway for transporting cargo, including crude oil and natural gas, was also close yesterday because of flooding.
Brent crude oil prices continue to rise as there is less faith that Saudi Arabia would be able to repair their damaged oil installations before the end of September as they indicated. There were reports yesterday that Saudi Arabia was asking their neighbor Iraq if they could buy 20 million barrels of crude oil. This gave the market the indication that Saudi Arabia would supply their customer from their own stocks, as well as, buying elsewhere. Iraq has disputed this story this morning. Reuters reported that public relations head, Haidar al-Kaabi, of Iraq’s State Organization for the Marketing of Oil (SOMO) said, “SOMO categorically denies any request from the Kingdom of Saudi Arabi to supply it with crude.”
UBS raised its 3-month trading range forecast by $6 due to an added geo-political risk premium. WTI’s oil range is now $57-$67 and Brent crude oil is $59-$71.
China’s new one-year benchmark lending rate was cut yesterday for the second month in a row to lower borrowing cost and support the economy. This is a sign that the US and China trade war continues to have any impact on both countries. India cut its corporate taxes also trying to revive private investment and lift growth from a six-year low.
Iran warned US President Donald Trump against being dragged into all-out war in the Middle East following that attack on Saudi Arabia oil facilities.
The Iranian Supreme Leader’s military adviser said Iran called on Gulf countries to come to their senses, adding that any aggression against the country will be met with crushing response.
Traders and analysts said Saudi Arabia’s ability to avert a global oil supply crunch will only become clear in a few weeks, because for now its crude held in storage can fill the gap and mask the scale of damage to its facilities. Saudi Arabia said production will return to normal in two to three weeks, which means restoring output to about 10 million bpd. While it carries out repairs, Saudi Arabia has promised to keep the physical crude market supplied from its inventories held in the country and abroad, estimated to have been about 180 million barrels in July. However, traders and analyst are skeptical repairs to the Abqaiq and Khurais sites will be swift, while the lack of transparency about Saudi Arabia’s inventories added to uncertainty about whether the country can keep the markets supplied without disruption. Traders said move by Saud Aramco’s trading arm Aramco Trading Corp to buy refined products, added to uncertainty about the level of Saudi stockpiles. Even if Saudi Arabia keeps the same volumes flowing to customers, there are signs it may struggle to supply the same grades.