Gasoline Slides 3%, Crude Prices Slip Too

Gasoline prices traded 3% lower on Friday, beginning September down after a whopping 25% rally in August, while crude futures also fell on the notion that supplies may be adequate despite disruptions to oil refining and drilling from Hurricane Harvey.

Viral images and news of gas pumps in Texas running out of fuel took the spot gasoline futures on the New York Mercantile Exchange to two-year highs above $2 a gallon on Thursday just before the front-month September contract expired. NYMEX’s West Texas Intermediate (WTI) crude also rose 1% on Thursday after three days of losses.

But as trading for the third quarter entered its final month, some early jitters over the potential long-term disruptions to energy supplies from the worst Texas storm in over 50 years fizzled.

“Consumers will see a short-term spike in the coming weeks with gas prices likely topping $2.50 gallon, but quickly dropping by mid to late September,” said Jeanette Casselano, spokeswoman for the American Automobile Association.

AAA, she added, “does not expect refineries to be offline for months, as early reports indicate minimal to no significant damage to (the) Corpus Christi and Houston refineries” in Texas shuttered by flooding from the storm. In total, the hurricane had idled 24% of America’s 18 million barrels-per-day (bpd) refining capacity.

Citgo, operator of the Corpus Christi refinery, said on Friday it was taking efforts to resume operations.

Hurricane Harvey had also shuttered a significant portion of crude output.

The Bureau of Safety and Environmental Enforcement, an agency of the U.S. Department of Interior, reported Thursday that nearly 14% of oil production in the U.S. Gulf of Mexico, amounting to 236,115 bpd of crude, remained shut-in after the hurricane.

Still, U.S. crude supplies and could normalize fairly quickly when operations returned, said analysts.

To back that up, the U.S. Department of Energy said Thursday it was releasing 1.0 million barrels from the nation’s emergency crude reserve in two equal batches to a Phillips 66 refinery in Louisiana. The Strategic Petroleum Reserve (SPR), a series of underground caverns in Louisiana and Texas, holds 678.9 million barrels of crude, enough to meet total U.S. needs for 33 days.

The U.S. Environmental Protection Agency, meanwhile, granted a waiver on low-volatility conventional gasoline requirements to 12 more states to boost gasoline supply in areas hit by fuel shortages.

Price Futures Group analyst Phil Flynn, typically a bull on energy prices, wrote in his daily note that the release of SPR and temporary waiver on gasoline specifications “should take away some (of the) upward price pressure”.

By 11:15 a.m. ET, the new front-month contract in NYMEX gasoline, October, was down $0.0492, or 2.8%, at $1.7300 per gallon. The previous spot contract, September, jumped 15% in Thursday’s session, reaching mid-2015 highs of $2.1678.

In crude oil, the front-month contract in WTI was down $0.18, or 0.04%, at $47.05 a barrel on NYMEX. WTI has lost about 3% combined on the week.

Brent, the global benchmark for oil, was down $0.20, or 0.04%, at $52.66 a barrel on London’s Intercontinental Exchange.

Analysts said crude’s downside was limited by a Reuters poll showing output from the Organization of the Petroleum Exporting Countries likely fell by 170,000 bpd in August from a 2017 high.

Market participants will be on the lookout at 1:00 p.m. for the weekly reading on the U.S. oil rig count from oilfield services firm Baker Hughes. In its previous report, the firm reported that the rig count fell by four to 759 for the week ended Aug. 25. A rising rig count denotes higher production in the future.

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