"It's only just beginning," warned one seasoned veteran energy trader as the hangover from Hurricane Harvey flows downstream to retail gas prices and jet fuel premiums.
As Bloomberg notes, Harvey impact currently includes:
- Colonial says it’ll commingle Rbob and conventional gasoline
- Explorer Pipeline planning to start lines Saturday, Sunday
- Logjam grows to 29 oil tankers as 11 ports remain closed
- Total Port Arthur is said facing extended shutdown on power loss
- Texas storm bucks N.Y. traders with wild gasoline expiry swings
- NHC issues final advisory on Harvey; losing tropical character
Which has left retail gas prices at the pump are now at their highest in 2 years...
And judging by their usual lagged response to RBOB, are set to go dramaticaly higher in the next few weeks...
And while inventories are high, deliveries are slow and fears of shortages have created lines at many Texas gas stations...
"This is going to be a substantial ouch for consumers," said Tom Kloza, global head of energy analysis for Oil Price Information Service. "Satan could not have drawn up a more horrible geographic scenario for knocking out Texas refining."
But it is Jet Fuel premiums that are even more worrisome...
New York jet fuel’s premium to Nymex futures rises 20.5c to 36c/gal., widest since 2008, data compiled by Bloomberg show.
And U.S. Gulf jet fuel premium widens 10.25c to 19c/gal., also widest since 2008...
And unlike Gasoline - where inventories are high - Jet fuel inventories are below average.
The latest EIA data implies jet fuel inventory levels are just over 23 days of forward cover, seasonally-adjusted, 8% below the five-year average. Flooding and crude oil supply disruptions have led to the temporary closing of more than 21% of the country's refining capacity, primarily in the Gulf Coast, contributing to further draws on jet fuel inventories.
All of which could be a problem for Delta, United, and American who have shunned hedging after some incurred losses when oil prices collapsed in 2014.
- American - No open hedge contracts, unhedged since 2014
- Delta - Stopped entering fuel hedge contracts in 3Q 2014, no plans to resume hedging, co. says in Dec.
- United - No fuel hedges as of June 30
“We are definitely watching this closely,” said Josh Freed, a spokesman for American Airlines Group Inc., the world’s largest carrier. “We don’t expect any immediate impact on our ability to operate our schedule. We are continuing to manage our fuel supplies and monitoring inventory levels regularly.”
Southwest has some fuel hedges...
- 2H 2017: 62% using derivatives tied to WTI, Brent
- 2018: 78% using derivatives tied to WTI, Brent - 79% was hedged in 1Q
- 2019: 61% using derivatives tied to WTI, Brent - 36% was hedged in 1Q
- 2020: 7% using derivatives tied to WTI
But the largest U.S. airline by domestic passengers, is working to ensure a steady supply of jet fuel after Hurricane Harvey forced the shutdown of crude-oil refineries and pipelines along the Gulf Coast. “It’s something we are concerned about and are working very aggressively to manage,” Chief Executive Officer Gary Kelly said in an interview Thursday. “I don’t expect any problem, but this is an evolving crisis.”
The rush to guarantee the fuel supply underscores the fallout on U.S. supply chains from widespread flooding in Houston and along the Texas and Louisiana coast after record rainfall. Southwest relies on the region for more than a third of its jet kerosene, although not all refineries were affected, Kelly said. Two pipelines that supply the Dallas-based carrier have been closed.
“It’s not to the point where there should be panic,” Kelly said. “The concern is along the lines of, we know there’s an issue and we have to take steps to mitigate it and that work is underway. We won’t have trouble based on what we know right now sourcing jet fuel to power our flights.”
But somehow, Airlines stocks are soaring post-Harvey.
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