Nightmare continues for crude

 

A shut down of the Colonial Pipeline in addition to the Explorer Pipeline and an explosion at a chemical plant is adding to the heartbreaking human suffering that is being experienced along out nations Gulf Coast.

There are reports overnight of two explosions at Arkema chemical plant in Crosby, Texas, that was caused by the plant being under six feet of water. Power outages and flooded backup generators failed and the ability to cool volatile chemicals became impossible, leading to the two explosions. The company warned officials that this was a probability and that there was nothing they could do to stop it. Ahead of the explosions authorities ordered the evacuation of residents within a 1.5 million radius of the plant, which makes organic peroxides used in the production of paints, plastic resins, polystyrene, and other products. The company is working with the government to try to keep this situation under control and we hope we don’t have to deal with more issues like this in the coming hours and days.

The Colonial Pipeline had to shut its main diesel and jet fuel line yesterday and will shut its main gasoline line today because of the inability to get product from refiners and keep the flows going on the line. Product is needed to keep the pressure up and now with at least 4.4 million barrels a day of refining capacity offline, or close to 24% of total U.S. capacity, based on company reports and estimates by Reuters, it is going to lead to sharply higher gasoline, diesel and jet fuel prices and raises the possibility of gas shortages along the East Coast. More than 3.0 million barrels a day of oil product is not going to be delivered to customers along the East Coast and even though the market is well supplied today, it may not be tomorrow. 

The market is looking to European cargos to help meet the impending gasoline supply squeeze but it will not hit our shores for 10 days and the volumes will not be able to replace lost supply. September RBOB futures will stop trading today and will be delivered next week, broke over $2 a gallon as there are fears that there will not be enough gasoline to be delivered. There is no talk of any failure to deliver on the Nymex contract but there may be some companies that may declare a force majeure as the product to deliver may not be there.

Natural gas will get EIA report as shut production in shale and in the Gulf of Mexico should crimp supply. The natural gas market has been calm so far but it may not be after today’s report. Demand destruction versus production destruction.