MARKET WATCH: Sandy heads for East Coast, disrupting oil supply, demand, and prices

Oil prices continued to advance modestly and natural gas prices continued to slip Oct. 26, but markets are now focused on Hurricane Sandy that was already knocking out power and flooding some East Coast and Northwest areas early Oct. 29.

Before noon, Sandy was still a Category 1 hurricane although apparently gaining strength 260 miles south-southeast of New York City with a projected nighttime landfall in New Jersey. Although the lowest category hurricane, Sandy is expected to collide with an east-bound winter storm that has dumped snow in West Virginia and a cold Arctic air stream from the north to create a super-storm that could disrupt business and travel from the Great Lakes to the West Coast.

East Coast refineries were shutting down or curtailing production ahead of the hurricane. Analysts in the Houston office of Raymond James & Associates Inc. reported 7% of US refining capacity is in the storm’s path. “The shutdowns in an already undersupplied Atlantic Basin product market should be bullish for cracks, though we'd note that this could be partially offset in the very short-term by the bearish demand implications of shutting down activity in the New York area,” they said.

Some 375,000 people have been ordered to leave flood-prone zones in New York City and the Brooklyn-Battery Tunnel and Holland Tunnel were to be closed. US stock markets shut down and likely will remain closed Oct. 30. It is the first unplanned closing of the New York Stock Exchange since the September 2001 terrorist attacks. Flooding was already reported in New Jersey and Delaware, and there were power outages in Connecticut and Virginia. Schools and public transportation were shutting down in Pennsylvania.

Marc Ground at Standard New York Securities Inc., the Standard Bank Group, said product prices climbed before markets closed, with heating oil up 0.4% and reformulated stock for oxygenate blending up 0.7%. “The implied weaker demand for crude has West Texas Intermediate trading on the back foot, down 0.9%. Brent is also being weighed down, 0.6% lower,” he said.

Otherwise, Ground said, “In the absence of any attention-grabbing headlines out of the Middle East, the market is preoccupied with high inventory levels and weaker demand in the US.”

Energy prices

The December contract for benchmark US light, sweet crudes increased 23¢ to $86.28/bbl Oct. 26 on the New York Mercantile Exchange. The January contract picked up 20¢ to $86.80/bbl. On the US spot market, WTI at Cushing, Okla., was up 23¢ to $86.28/bbl.

Heating oil for November delivery gained 3.57¢ to $3.10/bbl on NYMEX. RBOB for the same month rose 2.27¢ to $2.70/bbl.

The November natural gas contract dropped 3.4¢ to $3.40/MMbtu on NYMEX. On the US spot market, gas at Henry Hub, La., declined 1.2¢ to $3.35/MMbtu.

In London, the December IPE contract for North Sea Brent climbed $1.06 to $109.55/bbl. Gas oil for November escalated $10.50 to $968.50/tonne.

The average price for the Organization of Petroleum Exporting Countries’ basket of 12 benchmark crudes was up 54¢ to $106.37/bbl. So far this year, OPEC’s basket price has averaged $110.04/bbl.

Contact Sam Fletcher at samf@ogjonline.com.

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