Article / 31 August 2017 at 14:01 GMT

Why gasoline continues to spike higher — #SaxoStrats

Head of Commodity Strategy / Saxo Bank
  • Gasoline climbed above $2/gallon on severe disruption of Gulf Coast refining
  • Refineries unable to supply through main arteries to North Eastern parts of the US
  • The gasoline price will be supported until flows are reinstated or imports pick up
  • More than 3 million barrels/day of crude are left in tanks due to refinery outages
  • WTI crude oil likely to find support ahead of $45.25/b
Houston flooded by Harvey
 Houston flooded by Harvey, the major storm that has struck the 
centre of the US energy industry. Photo: Shutterstock

By Ole Hansen

Gasoline breached $2/gallon earlier today as catastrophic flooding continues to disrupt Gulf Coast refining capacity. Currently more than 3 million barrels/day of crude oil are left in tanks due to refineries' inability to operate amid the havoc wreaked by the storm now dubbed Tropical Depression Harvey.
RBOB Gasoline

Source: Saxo Bank

As the flooding moved east during the past 24 hours, additional refineries, some of the biggest on the coast, have closed down. As a result, refineries are no longer able to supply and maintain pressure in the main gasoline and diesel arteries supplying the North Eastern parts of the US. 

With RBOB gasoline futures priced on deliveries to the major East Coast trading centre for imports and exports at New York harbour, the price will continued to be supported until flows are reinstated or imports from Europe and elsewhere pick up.  

EIA: Transportation of fuels
The overhang of crude oil has started to spread to the global market. Brent crude, which has enjoyed improved fundamentals since July, has once again returned to contango at the front of the curve.   
Crude oil spreads
Libya’s production has dropped by more than 350,000 b/d this past week as three main fields remain disrupted, with rebels taking over pipelines and facilities thereby forcing the shutdown of three major oil fields.  A rapid rise in Libyan production forced the correction back in June, but with more than a 3-million-barrel/day drop in demand from Gulf Coast refineries, this development has only so far manage to prevent a potentially even greater oil price fall.

Analysts from JBC Energy see Opec’s August production down 300,000 b/d due to Libya, while the 12 members bound by cuts have increased compliance to 96% from 86% in July.

The global energy market is facing one of its biggest challenges in years, with global flows of both oil and products being severely disrupted and with shippers having to redirect and find new destinations. WTI crude oil, however, is likely to find support ahead of $45.25/b, the 61.8% retracement of the June-to-July rally, not least due to the continued pull from gasoline, but also considering the reduced net imports to the Gulf coast.

WTI and Gasoline
 Source: Saxo Bank

Corpus Christi refinery
 Refinery at Corpus Christi, Texas. Here shown before the storm 
shut a quarter of US refining capacity. Photo: Shutterstock

— Edited by John Acher

Ole Hansen is head of commodity strategy at Saxo Bank


The Saxo Bank Group entities each provide execution-only service and access to permitting a person to view and/or use content available on or via the website is not intended to and does not change or expand on this. Such access and use are at all times subject to (i) The Terms of Use; (ii) Full Disclaimer; (iii) The Risk Warning; (iv) the Rules of Engagement and (v) Notices applying to and/or its content in addition (where relevant) to the terms governing the use of hyperlinks on the website of a member of the Saxo Bank Group by which access to is gained. Such content is therefore provided as no more than information. In particular no advice is intended to be provided or to be relied on as provided nor endorsed by any Saxo Bank Group entity; nor is it to be construed as solicitation or an incentive provided to subscribe for or sell or purchase any financial instrument. All trading or investments you make must be pursuant to your own unprompted and informed self-directed decision. As such no Saxo Bank Group entity will have or be liable for any losses that you may sustain as a result of any investment decision made in reliance on information which is available on or as a result of the use of the Orders given and trades effected are deemed intended to be given or effected for the account of the customer with the Saxo Bank Group entity operating in the jurisdiction in which the customer resides and/or with whom the customer opened and maintains his/her trading account. When trading through your contracting Saxo Bank Group entity will be the counterparty to any trading entered into by you. does not contain (and should not be construed as containing) financial, investment, tax or trading advice or advice of any sort offered, recommended or endorsed by Saxo Bank Group and should not be construed as a record of ourtrading prices, or as an offer, incentive or solicitation for the subscription, sale or purchase in any financial instrument. To the extent that any content is construed as investment research, you must note and accept that the content was not intended to and has not been prepared in accordance with legal requirements designed to promote the independence of investment research and as such, would be considered as a marketing communication under relevant laws. Please read our disclaimers:
- Notification on Non-Independent Invetment Research
- Full disclaimer
- 沪ICP备13028953号-1

Check your inbox for a mail from us to fully activate your profile. No mail? Have us re-send your verification mail