Which Path Will Hurricane Rafael Take and Will It Blow Up Once It Hits the Warm Waters Of The Gulf of Mexico

Energy markets continue their recovery rally that has added more than 15 cents to diesel prices and 10 cents to gasoline over the past 4 trading sessions as the world braces for another round of Iranian attacks on Israel, and an unusual November hurricane in the Gulf of Mexico is predicted for later in the week.

In addition to that pair of supply concerns, OPEC and friends announced Sunday they would delay their pending production increases until the end of the year to try and prop up prices.

The big bounce starting last Wednesday is likely aided by short covering from large speculators who placed a large amount of new bets on lower prices in the prior week according to the CFTC’s latest COT report, just in time to get run over, which has become a theme of sorts this year. See charts below.

The two big questions with soon to be Hurricane Rafael are which path it will take and will it blow up once it hits the warm waters of the Gulf of Mexico like Milton and Helene did earlier in the season. The European forecasting model has the storm hooking west towards the Mexican Coast, while the US GEFS model takes it north to the MS/AL/FL panhandle area. AccuWeather’s forecast splits those two models and has the storm hitting in central Louisiana, not far from where Francine hit 2 months ago. The good news with so much uncertainty on the path, is that all of those models seem to think rapid intensification is unlikely so we might get lucky and have this only be a tropical storm when it hits land.

No matter which of the 3 paths this storm takes, expect to see Gulf of Mexico drilling operations cut back as a precaution as the system looks like it will move through the heart of the offshore wells.

While we wait to see how that storm develops, tornadoes are ripping through Oklahoma and a huge line of thunderstorms are sweeping across the Mid-Con this morning which have the potential to cause some short term upsets at refineries across the region. At this point, the HFS Tulsa and CVR Coffeyville KS plants look like they’re facing the most severe threat as the line that just dropped tornadoes on Oklahoma cities will be passing nearby.

Lyondell Basel confirmed it would begin shutting its 264mb/day Houston Refining plant in January during its Q3 earnings call last week. The future of that facility is still up in the air, with hydrogen projects discussed along with advanced recycling opportunities and a renewables conversion of certain units that looks like a long shot near term given the weak margin environment but could still be a longer term option.

If you add up the drop in capacity from Houston Refining, plus the P66 LA-area plant, and shuttering facilities in Scotland, Germany, and China, roughly 1 million barrels/day of old refining capacity is set to come offline next year. While that may sound ominous, new refinery projects primarily in India, China and the middle east will continue to push total global capacity higher in the coming years, meaning more closures in North America and Europe are still likely.

The EIA this morning highlighted the rapid growth in Ethane exports over the past decade as the US wealth of underground resources continues to provide plastics production around the world.

Flint Hills reported a diesel leak at its Corpus Christi refinery Saturday, but it appears that event did not impact operations at any production units.

Baker Hughes reported minimal changes in its rig count last week for US operators with oil rigs down 1, and natural gas rigs up by 1. The Permian and Eagle Ford both dropped 1 rig on the week, while the Williston (Bakken), Marcellus and Barnett basins each added 1.