The main reason for the fall in prices is the shutdown of refineries along the Gulf Coast. The storm is expected to halt production at 12 of the nation’s largest refineries along the Gulf Coast, lowering their demand for crude in the short term. The thought that the storm may lead to the United States opening their strategic reserves to make up production also contributed to the decline in crude today.
Despite the fall in crude, gasoline and heating oil did not see the same decline. With refineries shut down and no reserves of refined products to be released the supply of heating oil and gasoline will be disrupted far more than crude supply. The spread blew out in trading today but closed off of highs.
With the concern over production in the Gulf fading markets now look to Venezuela and try to evaluate how much the explosion at the Amuay refinery will impact the price of crude. The explosion occurred early on Saturday morning with a confirmed death toll of 41 people. The fires are still burning but Venezuelan officials say that the situation is completely under control. The refinery is capable of producing as much as 645,000 barrels per day, and officials claim that the refinery will be fully operational within 2 days of the all clear. The shutdown of this refinery doesn’t appear to be having a large effect on prices in the short term, but medium term effects will depend on whether or not the Venezuelans can stick to their time table for reopening the refinery.