New York — Products futures settled lower Thursday as the market re-evaluated the risk a downgraded Hurricane Florence posed to critical infrastructure along the East Coast.
NYMEX October ULSD settled down 3.42 cents at $2.2235/gal, and NYMEX October RBOB closed 4.19 cents lower at $1.9929/gal, after having traded as low as $1.9800/gal during the session.
The latest forecasts from the National Hurricane Center show Hurricane Florence is expected to make landfall as a Category 2 hurricane with maximum wind speeds of less than 110 mph, compared with previous forecasts calling for the storm to maintain major hurricane status as it approached the coast.
Though data from DTN, an independent provider of rack price information, showed that the rack price of unbranded, unleaded gasoline in cities in Florence's path, such as Charleston, South Carolina, or Wilmington, North Carolina, spiked over this past week, the Carolinas' supply situation is far from dire.
The two states depend on the Colonial and Plantation pipelines for the majority of their gasoline, diesel and jet fuel supply, and so far both pipelines continue to operate normally.
The Northeast is also dependent on refined product supplies off Colonial and Plantation, and the market was concerned earlier in the week that Florence could force a portion of the pipelines down due to power outages or flooding. While Florence still poses a threat to the pipelines, that threat has been reduced.
Despite downgraded status, Florence was still expected to have a major impact on regional demand.
"[There were] misplaced fears that production or pipelines could get hampered, but all those are going to make it through this," said Again Capital partner John Kilduff. "Even though the hurricane got downgraded in terms of wind, flooding and rainfall, totals will be epic and those will mean demand destruction for products as displacement and other factors will keep folks off the road."
According to S&P Global Platts Analytics, combined consumption of gasoline, distillates, jet and LPG averages roughly 446,000 b/d in North Carolina and 260,000 b/d in South Carolina.
In light of the downgraded hurricane, the market reevaluated the price impact of stock builds reported Wednesday by the Energy Information Administration, said IAF Advisors owner Kyle Cooper.
"Today is a reflection of what happened yesterday in terms of EIA data as well as expectations of the storm [weakening]," said Cooper. The stock build was a "continuation of quite bearish distillate data over the past few weeks," he added.
EIA reported that US distillate stocks increased by 6.16 million barrels to 139.28 million barrels during the week ended September 7. Stocks have climbed 24.6 million barrels since early June.
Crude futures also declined Thursday on reports of record-high global production.
ICE November Brent settled $1.56/b lower at $78.18/b and NYMEX October WTI finished down $1.78/b at $68.59/b.
The bulk of the declines were seen early in the session in the wake of a report from the International Energy Agency stating global oil production reached a record-high 100 million b/d during August.
The report's findings reduced concerns of a global supply crunch stemming from a re-introduction of US sanctions on Iran in November.
But bullish sentiment remains.
"The IEA report certainly took the wind out of the sails for the rally given the nice uptick we saw in production," said Kilduff. "But things are looking to be a bit of a supply crunch toward the end of the year and there is consensus emerging that there will be a tight set up come winter."
At the same time, the potential for lower long-term demand also weighed on prices. On Thursday, Turkey's central bank increased interest rates 625 basis points to 24% in an effort to stymie inflation in the Turkish lira. The move could slow economic activity in the country and reduce oil demand growth.
"There is concern that we are seeing news of emerging market currency fluctuations that could lead to economic slowdown in those countries " Lipow Oil Association President Andrew Lipow said, adding "There is the potential for that type of disruption to spread to other countries."
