Continued Storms Bring Spot Prices Surging

Election day in the US kicks off with energy markets continuing their march higher as a hurricane takes aim at refinery row along the Gulf Coast while many are just hoping to avoid a storm of another sort once the polls close this evening.

Spot prices for gasoline and diesel around the US are up 16 cents or more in the past 5 trading sessions, but futures are still struggling to break above the downward sloping trendline that’s contained every rally for the past year which keeps the door open for new lows to be set once the storm passes, although it’s hard to see a big sell-off until the extent of Iran’s promised attack on Israel is known.

Rafael is expected to hit Cuba tomorrow as a Category 2 hurricane, and then forecasts suggest the storm will weaken as it moves north due to a combination of cooler water and wind shear. Thunderstorms currently sweeping across the region are adding to the uncertainty of the storm’s path with the Euro model still favoring a hook to the West, while the US model favors a more easterly heading.

Even though the track on the EIA’s energy atlas looks like this storm could threaten the critical refinery clusters (AKA Colonial origin points) around Pt Arthur/Beaumont and Houston/Pasadena, the AccuWeather track and the US GEFS model suggest the storm will hook north towards New Orleans, putting the refineries along the Mississippi river, and Chevron Pascagoula more in harm’s way while Texas will likely dodge another storm.

That good news for Texas is bad news for parts of Florida and the Southeast that have already been battered by 2 hurricanes this year and are expected to see more heavy rainfall in the back half of this week, although the rain predictions are nowhere near the levels that devastated the region following Helene in late September. Regardless of where the storm makes landfall, it looks like it will travel through the heart of the off-shore oil production zone, which will mean temporarily lower production while the storm passes, but if forecasts hold for continued weakening as it moves north, it should not have long term impacts on either production or refining assets in the region. If however this storm blows up once it hits warm water like Helene and Milton before it, then all bets are off.

Marathon followed the rest of its peers reported sharply lower earnings compared to a year ago led by a 76% drop in its refining segment EBITDA, while its midstream operations saw earnings tick modestly higher. Marathon highlighted capital investments at its Los Angeles and Galveston Bay refineries, highlighting how the surviving US operators will benefit from the closures announced by P66 and Lyondell. As the largest US Refiner, Marathon also offers a chance to compare operating costs across the regions, with Gulf Coast plants needing about $4/barrel to run, Mid Con facilities requiring $5/barrel, while their West Coast facilities cost $7.5/barrel.