Energy Update – Going into Harvest Season

Unless you live completely off grid, you have likely heard about the drone attacks in Saudi Arabia.  These attacks took out half of the supply of the worlds largest oil processing facility.  The markets quickly reacted on Monday, posting a gain of over $8/barrel by day’s end.  Gasoline & diesel both showed almost a 10%  value increase to end the day. 

By 9 a.m. Tuesday morning, the Saudi Energy Minister held a press conference, and to everyone’s surprise he stated that the crippled processing facility should be completely restored in 14-21 days.  Within 10 minutes of this news hitting the streets, crude took a 180 degree turn, taking back almost 40% of Monday’s gains.  The crude market continued to fall over the day, ending $3.56 in the red.  Gasoline followed in crude’s footsteps, taking back more than 50% of the gains it saw the day before. 

Seems like we were on the right track, huh?  Well, though we were settling down geopolitically, the US gulf coast had different plans.  Looks like Texas is in for a little tropical storm.  TS Imelda started forming right off the gulf coast.  Eastern Texas refineries are preparing for some pretty heavy rain and flash flooding.  This has the potential to not only hinder refinery production, but there is a pretty big possibility that the Houston ship channel could be closed to marine traffic.  This is just plain old bad timing. 

Because crude oil typically reacts more from worldwide events, it continued to retreat over the next 24 hours, taking back 65% of Monday gains.  Gasoline followed crude retreating with a pretty significant loss.  But locally, diesel fuel is reacting to not only the drone attacks, but the fear of what Tropical Storm Imelda may bring to Texas’s eastern coast.  By the time final values came out Wednesday night, diesel had climbed 20% since last week’s close. 

Typically, we see higher diesel prices in the fall due to supply/demand during harvest season.  Because of the poor planting season, I think marketers expected a flatter market than normal.  However, taking the drone attacks, Tropical Storm Imelda, all of the sanctions recently put in place with China & Iran and the interest rate cut as of yesterday, fall harvest season may be more volatile than anyone could have imagined.  Hold on tight, we may be in for a wild ride!

Written by Kim Leisner, Energy Sales Manager

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