Crude: the comeback trail

Oil prices and petroleum products are starting to deal with the recovery phase in Florida and Texas and the rest of the Gulf Coast. Gas prices at the pump are showing signs of stabilizing as refiners come back on line and fears of demand destruction as places in Florida and in Texas are cutting into local demand.

The Trump administration waived the Jones Act to allow more gasoline to be delivered to Florida to help get gas for first responders. Most of Florida’s gas is brought in by ship. The Jones Act mandates the use of U.S. flagged vessels to transport merchandise between U.S. coasts. This will allow foreign-flagged vessels to bring in gasoline into Florida’s ports that are just starting to reopen.

RBOB gasoline futures which spiked to as high as $2.17 a gallon on the September contract are now back to within a dime of pre-storm levels after hitting a low of 160.06 in the October future. This is more evidence that the U.S. energy Industry has done an amazing job rebounding from this storm and taking seriously their mission to provide fuel at fair prices. Even the hard hit Motiva, Port Arthur, Texas refinery, the country's largest, is back to a minimum production level after it fixed its 325,000 barrel a day crude unit. Gas prices are not that high considering all that we have gone through.

Reuter’s is reporting that California and three other U.S. states are suing the government for delaying the rollout of higher "gas-guzzler" penalties for automakers. The Trump Administration ordered a review of U.S. vehicle fuel efficiency standards from 2022-2025 put in place by the Obama administration, saying they were too tough. The penalties are for automakers building new vehicles that fail to meet minimum fuel-economy standards. Regulators have been debating whether to grant automakers significant reductions in fuel economy requirements. The suit, which also includes Vermont, Maryland, and Pennsylvania, is the highest-profile legal challenge to the Trump administration vehicle policy to date. As part of a broad deregulation push under President Donald Trump, regulators are debating whether to grant automakers significant reductions in fuel economy requirements. California Attorney General Xavier Becerra said in a statement that fuel efficient cars mean "cleaner air, better overall health for our children, and savings at the pump... We will hold the Trump Administration accountable." Stay tuned.

Natural gas rallied even after Hurricane Irma knocked out power to over 7.3 million in Florida, Georgia, South Carolina and Alabama causing significant demand destruction. It is in part because many thought it could be worse and fears of infrastructure damage to power lines and Florida’s three large nuclear plants was not as bad as feared. Vows from the Trump Administration to call power companies from all over the country to get the power back on line as quickly as possible will allow for the recovery efforts to go more smoothly and quickly.

In fact, many markets yesterday reacted to the fact that things, while terrible, could have been a lot worse.

Lumber futures went limit down as many structures fared much better that feared. Orange juice tanked hard and then rebounded as the market awaits the extent of the damage to citrus and vegetables in the aftermath of the storm.

For oil, demand destruction is the short-term fear and we fight some seasonal weakness. The rebuilding effort will mean more demand down the road. Construction and materials and the demand to create those products should give a boost into the end of the year.