Isaias formed about 580 miles southwest of the Mississippi River's mouth and is forecast to strengthen. Offshore operators pulled nonessential workers, and six refineries sit in the forecast landfall area.
A storm in the Gulf of Mexico split the energy complex on Wednesday. Crude oil fell. The fuels refined from it, and natural gas, went the other way.
U.S. benchmark crude traded near $88.33 a barrel at about 2 p.m. Eastern, down 1.2%, after reaching $90.98 earlier in the session. Brent crude slipped about 0.5% to roughly $100.13. Heating oil futures, the benchmark for diesel, rose about 0.8% to $4.60 a gallon, and natural gas futures gained about 2.1% to $3.18 per million British thermal units.
The storm
Tropical Storm Isaias formed early Wednesday about 580 miles southwest of the mouth of the Mississippi River, with maximum sustained winds of 40 miles an hour. The National Hurricane Center said it expected the storm to become a hurricane, with a possible landfall between eastern Louisiana and the western Florida Panhandle, and warned of an "increasing risk of dangerous wind and storm surge impacts." Forecasters expect a significant hurricane to approach the northern Gulf Coast on Friday. Florida declared a state of emergency for 25 counties.
What sits in its path
Offshore areas in the forecast track produce about 15% of U.S. crude oil and 5% of its natural gas. Six refineries, run by Shell, Valero, Marathon, PBF and Chevron, are in the forecast landfall area. Gulf Coast states hold about half of the nation's 18.2 million barrels a day of refining capacity.
Producers have begun moving people. Chevron said it was transporting nonessential personnel from its Gulf platforms and that "production from our Chevron-operated assets remains at normal levels." Shell is evacuating nonessential staff from its Stones, Mars, Olympus, Ursa, Vito and Appomattox platforms, and BP is removing nonessential workers as well.
The inventory report
Weekly government data added a second input that did not lift crude. The Energy Information Administration said U.S. crude inventories fell by about 3.19 million barrels last week, against expectations for a build of about 1.7 million. Gasoline stocks rose about 382,000 barrels, distillate stocks were roughly flat, and inventories at the Cushing, Okla., hub increased about 444,000 barrels. Crude prices fell anyway.
The diesel question
Diesel has been the tightest part of the U.S. fuel market this fall. Chevron's chief executive, Mike Wirth, said Wednesday it would be "unwise" for the administration to move ahead with a ban on diesel exports, warning that it could leave allies questioning whether the U.S. will be a reliable supplier and that "there are other options."
The debate
One reading is that the crude risk premium is still fading. Producers report normal output, and flows of oil from the Persian Gulf have largely recovered, so a storm that interrupts some offshore barrels for a few days does not change the balance much.
Another reading is that the risk is moving down the supply chain, toward refineries and fuels. Crude fell while heating oil and gas rose, and the refineries in the cone process crude into exactly the products that have been in short supply.
The next 72 hours
National Hurricane Center advisories over the next two days will narrow the landfall zone. Government shut-in figures for Gulf production and any refinery shutdown notices will show whether the storm's effect lands on crude, on fuels or on both. A widening gap between heating oil and crude through Friday would indicate the market is pricing refinery risk.