Futures markets never pretended to care about the hurricanes, with crude falling more than $24/b since the end of August as Hurricane Gustav and then Ike steamed through the Gulf of Mexico. The RBOB crack spread rose, but only up to $15/b before falling back.
Petroleum cash markets in the US pretended to care for a while, surging last week on concerns refinery production would be shut in for a long time, but cash differentials fell back Tuesday as quickly as they rallied last week, as it appears Hurricane Ike did not cause widespread destruction to the Gulf Coast refining industry.
Gulf Coast conventional gasoline, which had been valued as high as $1.9975/gal above the October NYMEX RBOB contract on Thursday, according to Platts data, has been falling ever since the hurricane approached the coast.
By Tuesday, Gulf Coast differentials had fallen down to less than 38 cents/gal over the NYMEX. The same has happened in the Midwest, with Chicago differentials falling to less than 80 cents from plus $1.25/gal.
Gasoline rack prices, which had risen sharply as well, are also heading lower, especially in the South and Southeast where the mark-ups had been the highest.
It's another case of buy the rumor, sell the fact...refineries appear to be powering back up, and damage has been minimal. ExxonMobil has begun the restart process at its 562,500 b/d Baytown, Texas refinery, the largest in the US, for example.
It's not a surprise that futures markets reacted as they did, as larger economic problems and financial market turmoil have led some players to pull money out of commodities, which would perform poorly amid a slowing economic climate.
But just as the initial fears of destruction were overblown, perhaps the optimism that all is going to be quickly back to normal is also premature. Restarting a refinery is a complex process, and can sometimes take weeks before the plant is running normally.
It never really was about the so-called fundamentals. Small issues were hyped to increase prices and draw more speculative money into the market allowing yesterdays buyers to sell todayat a higher price. The shortfall between supply and demand was a limited supply of futures contracts and an excess of money chasing those contracts. Now we see who is going broke on the way back down and the money cannot find the exits fast enough.
So much for the much vaunted "commodity super cycle".This time it once again was not really different than the last time.