Gasoline: Wavering wavers

After yesterday’s RBOB gasoline futures expiration blowout, the Trump Administration is pulling out all the stops to try to reduce shortages of gasoline and try to calm down soaring prices. Driven by massive refinery outages and fears of deliverable supply, gas was on high octane. The September RBOB gasoline futures surged at one point higher by more than 28 cents a gallon, driving the wholesale price of gasoline to the highest level in over two years. 

Retail prices also hit a new high for the year according to triple A and you can expect more price increases, if not spikes, coming at the pump. A release from the Strategic Petroleum Reserve and a temporary waiver of gasoline specifications should take away some gasoline upward price pressure.

The U.S. Environmental Protection Agency on Wednesday granted a waiver on low-volatility conventional gasoline requirements to 12 more states in response to fuel-shortage concerns. The decision opens the door for expanded E15 sales through Sept. 15 in some areas. Still, despite the waiver from the government, deliveries against the expiring RBOB futures contract will get no such waiver. Worries by traders about the amount of deliverable gasoline added to yesterday’s massive RBOB run.

In a press release,  the CME Group said, “the Exchange has determined that the EPA waiver will NOT apply to September 2017 gasoline deliveries against the RBOB Gasoline Futures contract, based upon the timing of the EPA waiver, which was issued late in the trading day during the expiration of the September RBOB Gasoline Futures contract, as well as our assessment of the current state of the marketplace in Exchange-approved terminals in New York Harbor."

The exchange did say that in its sole discretion, it will review the provisions of the waiver on a case-by-case basis to determine whether to modify the existing delivery requirements for RBOB-designated gasoline to comply with such waiver. 

The Colonial Pipeline, Americas major pipeline that feeds products all up and down the East Coast at the rate of 2.5 million barrels a day, will be allowed to mix specifications of gasoline to assure that there can be the most product available. This may allow for the restart of the gasoline pipeline early next week and by comingling product should make enough product available to push it through the lines. 

AAA reported $2.45 yesterday, this national gas price average is the highest recorded price for a gallon of unleaded gasoline so far, this year. They say that the near-term combinations of numerous refinery and pipeline shutdowns, tightened access to supply levels in the Gulf and anticipated high gasoline demand surrounding Labor Day weekend, means motorists may not have seen the full impact of Harvey at the pump.

“Consumers will see a short-term spike in the coming weeks with gas prices likely topping $2.50/gal, but quickly dropping by mid to late September,” said Jeanette Casselano, AAA spokesperson. “AAA does not expect refineries to be offline for months, as early reports indicate minimal to no significant damage to Corpus Christi and Houston refineries.”

We will be looking at refinery restarts. Close to 25% of U.S. capacity is offline. Reuters is reporting that with the shutdown of the Motiva refinery, 19.6 percent or 3.65 million bpd of U.S. refining capacity will be shut due to Tropical Storm Harvey and some say it is more like 25% with more than four million barrels still off line. Motiva may start a restart in two weeks. 

What is amazing to me is the strength and courage of the people in Houston and Port Arthur area and all along the Gulf Coast. I especially what to thank the folks in the energy industry. While many of their homes were underwater they were at work bringing back American energy! You are all in my prayers.

If all this drama and pain were not enough for you, the market will have to worry about Hurricane Irma that has a chance of going into the Gulf of Mexico or up the East Coast. Let’s all pray she goes harmlessly out to sea. Then we have another disturbance brewing, going to the coast of Africa that has a 50% chance of being Tropical Storm Jose over the weekend.