Oil Prices Are Up Less Than $1/Barrel, Which Demonstrates The Uncertainty Swirling About The War In The Middle East

It’s been a volatile week for energy prices with refined products seeing 9 cent swings in 3 of the first 4 days. Despite that volatility, the net change for the week is less than 4 cents for gasoline and diesel futures, and oil prices are up less than $1/barrel, which demonstrates the uncertainty swirling about the war in the Middle East, and demand for fuel in China and the US.

Several of the world’s largest oil and gas producers urged the US to stop Israel from bombing Iran’s oil infrastructure Thursday, following threats from Iranian officials that Arab production facilities may become targets (again) by Iran’s proxy armies should Gulf states allow their airspace to be used in attacks. The EIA’s provided a brief analysis this morning on the disruption in shipping traffic through the Red Sea that’s been the main issue with the war so far, and discussed why prices haven’t risen more despite several of the world’s largest producers being caught up in the fighting.

Good news this morning is that Kinder Morgan’s Orlando Fuel terminal (the only bulk terminal in the city) is back up and running this morning after shutting for 2 days as the storm passed which means no major damage occurred. The numerous terminals around Tampa bay remain closed as damage assessments are still underway and the port will need to be cleared of debris before more ships can arrive, but since the water was pushed out of the bay instead of inland thanks to the storm hitting 60 miles south, optimism for a quick return to service is high, which will alleviate concerns of extended fuel supply disruptions. It’s worth noting that despite news reports that the storm had contributed to the jump in fuel prices yesterday, Florida has no oil refineries or oil production to speak of, so the only risk is localized and won’t effect either futures or cash markets directly.

2 refinery workers were killed and at least 35 were injured by a hydrogen sulfide leak at the Deer Park TX refinery Thursday. That facility was recently purchased by Pemex, who unfortunately is continuing their recent trend of deadly accidents. Mexico’s President meanwhile claimed that Pemex’s “new” Dos Bocas refinery was operating at close to 80% capacity just 2 years following its grand opening while Pemex officials reported it was only operating at 25% of capacity in August.

Marathon notified California officials late Thursday night that they were planning a week’s worth of flaring at their Carson (LA-area) refinery after multiple upsets at that plant in the past couple of weeks. That facility is combined with Marathon’s Wilmington facility to form the largest refinery in the region, so any lengthy upset has the potential to drive basis values sharply higher, although it’s too early to know if this latest alert has prompted any buying.

BP joined the chorus of refiners warning about a big drop in earnings as crack spreads have dropped to 3 year lows. With the winter demand doldrums still ahead of us, the game of chicken to see which refiners will cut rates first, which could salvage earnings for the others, has begun.