Texas-Sized Storm Bucks N.Y. Traders With Wild Gasoline Swings

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(Bloomberg) -- New York traders rode wild swings in the gasoline futures market on expiration day amid market turmoil triggered by Hurricane Harvey and the floods that followed it.

The premium of September gasoline futures over the October contract touched 40.05 cents a gallon at one point Thursday on the New York Mercantile Exchange, the highest-ever level for this time of year. The gap more than tripled from its closing price Friday, as the storm that battered Texas knocked almost half of U.S. Gulf Coast refining operations offline.

“The traders who bought September are betting that the refineries had extensive flooding and won’t be up and running soon,” said Ernie Barsamian, chief executive officer of The Tank Tiger, a terminal storage clearinghouse. “It’s like betting against the shooter at the craps table or rooting for the bull at the rodeo, hoping the cowboy falls off and gets trampled.”

Government officials have stepped in to ease the burden of gasoline shortages felt around the country by loosening air-quality standards. 

The U.S. Environmental Protection Agency on Thursday extended its fuel waivers to allow for earlier use of winter-grade gasoline, which normally can’t be delivered until mid-September, in 38 states. This means the extra supply that wouldn’t normally be released for another two weeks is now free to go to market. Reformulated gasoline, which burns cleaner than conventional, isn’t being required for use in densely populated cities through Sept. 15 either, according to the waiver.

New York Harbor is the delivery point for gasoline futures traded on Nymex. While exchange rules require that gasoline shipped to the hub have a lower Reid vapor pressure through Sept. 15., the exchange can follow the EPA’s lead when it issues waivers and lift the requirements on a case-by-case basis. This time around the exchange’s owner opted out.

“The EPA’s gasoline waiver will not apply to September 2017 gasoline deliveries against the RBOB futures contract,” Chris Grams, a spokesman for CME Group Inc., Nymex’s owner, said by email.

And it’s not just September gasoline that’s strong. The October contract jumped to 17.44 cents over November on concern that supplies will be tight for weeks.

U-turns

The same traders that are getting whipped around in the futures market are also redirecting tankers on the high seas with gasoline on board. Repsol SA, Spain’s state-run oil company, directed a tanker to make a U-turn back to New York after it started to point south earlier this week. Mocoh SA, a trading firm that typically sends gasoline to West Africa, diverted two European gasoline cargoes to Florida this week, according to shipping and vessel-tracking data compiled by Bloomberg.

While New York will be a hot destination for gasoline deliveries in the next few weeks, it’s also set to be a supplier of fuels for Southeast markets that have been starved by closures of Gulf Coast ports that typically send them shiploads of gasoline. Four empty Jones Act vessels with authorization and capacity to bring 1.2 million barrels of fuels will load in the coming days in Philadelphia and New York, Bloomberg ship-tracking data show.

In addition to diversions, traders have spent the last few days grabbing every gasoline ship they can to replenish the U.S. East Coast. The current rate at which charters are booking ships is the highest since November, shipbrokers said, when the country’s largest gasoline pipeline burst and cut off supplies.

“As prices in the near month escalate, cargoes will be making U-turns toward New York Harbor,” Barsamian said by telephone. “That’s when the DJ packs up his stuff and the music stops.”

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