Oil declined the most since July as Hurricane Irma threatened to slash energy demand that had only just begun to recover from the wrath of Hurricane Harvey. Futures slid 3.3 percent in New York.
While Valero Energy Corp and other refiners resumed fuel production in the US after Harvey roared ashore two weeks ago, demand for gasoline and other transportation fuels might falter across much of the southeastern US if Florida and neighboring states take a direct hit from Irma.
Florida burns more gasoline than any other state except California and Texas.
Uncertainty has traders “pulling in their horns ahead of the storm,” Phil Flynn, senior market analyst at Price Futures Group Inc in Chicago, said by telephone. “They are worried about demand destruction.”
The most recent data from the US Energy Information Administration showed last week’s rise in US crude stockpiles was the largest since March.
Meanwhile, deliveries of foreign crude to the US Gulf Coast fell to the lowest in records going back to 1990 as Harvey’s wind and rain shut every major port in the region.
“People are thinking we’ve had the worst of the refinery outages and that’s behind us,” Michael Lynch, president of Strategic Energy & Economic Research Inc in Winchester, Massachusetts, said by telephone. “The refineries will be starting up and absorbing more crude.”
West Texas Intermediate (WTI) for October delivery on Friday declined US$1.61 to settle to US$47.48 per barrel on the New York Mercantile Exchange. Total volume traded was about 26 percent above the 100-day average. Prices were up 0.4 percent for the week.
Brent for November settlement fell US$0.71 to end the session at US$53.78 per barrel on the London-based ICE Futures Europe exchange, up 2 percent for the week.
The global benchmark traded at a premium of $5.72 to November WTI, the largest since 2015.
The market also “seems to be a little technically heavy,” Flynn said. “When you don’t know how exactly the fundamentals are going to play out, the computers are just going to play the charts.”
TANKERS PLAY DODGE
Traders are shifting fuel tankers around the world like chess pieces to stay one step ahead of nature.
One natural disaster is difficult enough to trade around. This week, traders have been hit with not one, but four, as three hurricanes and an earthquake rattled the western hemisphere.
“The traders are trying to follow the money, but the hurricanes are getting in the way,” said Andy Lipow, president of Lipow Oil Associates LLC in Houston. “Traders are reacting to the changing arbitrage and the weather that is forcing them to change plans on what seems like a daily basis.”
It is hard to know where tankers are best placed when gasoline prices are as choppy as the seas beneath them.
Prices spiked in the US after Harvey, drawing gasoline, diesel and jet fuel from all corners of the world.
However, some prospective cargoes from Asia and Europe have been canceled as prices plunged almost as fast as they soared.
Now, supplying fuel to Florida after Irma might be eased after the US waived the Jones Act, allowing foreign vessels to carry fuel between US ports.
“In some cases, the trader may deviate from an intended destination due to a better opportunity elsewhere,” said Conor Stone, a marine transport advisor at McQuilling Services LLC. “You have to assume that for the trader to incur the extra expense, they have identified an arbitrage opportunity offsetting the expense.”
When Harvey shut down Texas refineries and ports late last month, Mexico, the US’ biggest customer, quickly made alternate plans for supply.
In July, 72 percent of Mexico’s gasoline sales came from imports. With the quick route from the US Gulf Coast shut off, the trading arm of Petroleos Mexicanos PMI booked vessels to haul fuels like gasoline and diesel from Europe, the Caribbean, Asia, Canada and the rarest origin of them all: New York.
Typically a fuel importer, New York Harbor was tapped to supply fuel-thirsty Mexico. The tanker Largo Sun loaded and set off for Tuxpan on Mexico’s East Coast.
However, that ship is in a holding pattern, with Tuxpan closed as Hurricane Katia strengthens on its way to the coast.
“Pemex was ahead of the game,” said Sandy Fielden, director of research and commodities for Morningstar Inc. “They’ve got a bunch of cargoes on hand.”
However, now, with the hurricane shutting ports, “they’re going to get hit with higher prices,” he said.
Oil market news:
‧ The US oil rig count dropped by three to 756 rigs, the lowest level since June, data from Baker Hughes Inc showed on Friday.
‧ Russia should follow Mexico in using financial instruments to lock in future oil revenue as producers confront growing risks from cyclical price moves, Goldman Sachs Group Inc said.
SUPPLY CHAIN RESHUFFLE: The chipmaker was ‘cautious’ in not making commitments too early in building production in the US, citing ‘geopolitical factors,’ Nikkei Asia said Taiwan Semiconductor Manufacturing Co (TSMC, 台積電) is considering building an advanced IC packaging plant in the US following a massive investment to set up a wafer fab in Arizona, Nikkei Asia reported. TSMC was considering the plant in response to “Washington’s desire to bring more of the tech supply chain onto home turf,” the report said. TSMC increasingly faces the need to expand in the US, which accounts for about 62 percent of its total sales, Nikkei Asia said, citing three sources who declined to be named. The potential US plant would be equipped with the latest 3D stacking technologies to arrange chips
MARKET BOOST: Elon Musk said Tesla would resume bitcoin transactions once there is ‘reasonable’ clean energy usage by miners and denied selling a big part of his holdings Bitcoin yesterday hit a two-week peak just shy of US$40,000, after another weekend reacting to tweets from Tesla Inc chief executive Elon Musk, who fended off criticism over his market influence and said Tesla sold bitcoin, but might resume transactions using it. Bitcoin has gyrated to Musk’s views for months since Tesla announced a US$1.5 billion bitcoin purchase in February and said it would take the cryptocurrency in payment. He later said the electric vehicle maker would not accept bitcoin due to concerns over how mining the currency requires high energy use and contributes to climate change. “When there’s confirmation of reasonable
China Steel Corp (中鋼), the nation’s biggest steelmaker, yesterday said that it would not be raising prices for some products next month, ending 12 consecutive months of increases. “There is a discrepancy between China Steel’s prices and international prices, but in consideration of price stability, we have decided not to adjust upward monthly-priced products,” the company said in a statement. That means the price of hot-rolled steel plates, hot-rolled steel coils, cold-rolled steel coils and other monthly-priced items would not change next month. However, the cost of other items priced seasonally would be going up, the company said, adding that prices of products
An announcement by ASE Technology Holding Co (ASE, 日月光投控) ordering its migrant workers to move from private rented accommodation to company dormitories is in line with Central Epidemic Command Center (CECC) regulations, the Ministry of Economic Affairs said on Saturday. The “temporary measures” adopted by the IC packaging and testing company “are in accordance with epidemic prevention requirements set by the CECC,” the ministry’s Industrial Development Bureau said in a statement. By stepping up regulation of worker accommodation, the company hopes to prevent more migrant workers contracting COVID-19, the statement said. The statement did not specify which CECC regulations the