Monday Market Musings – Making Money on Misery


Those same 2 gasoline (/RBV7) contracts we initiated in Wednesday's Live Trading Webinar (which I reminded you of in Friday morning's PSW Report) made another $700 per contract over the weekend and we stopped out with over $5,400 gains at the $1.60 line as Hurricane Harvey seems to have peaked out and Gasoline Futures hit our +5% on the money.  That's a big YOU'RE WELCOME to get our week started but our hearts go out to the people of Texas, who are suffering from the after effects of the storm we used to make money on.

If NOT betting gasoline would go up when a hurricane hits the Gulf Coast refineries, then I would have felt bad about the bet but this was one of those essentially sure things you really can't pass up if you want to call yourself a trader.  As it stands, about 22% of Gulf Refining Capacity is off-line and that's 1Mb/d our of 5 that's going to get drawn out of inventories for the duration because the rest of US refining has been operating near capacity and can't make up that kind of shortfall – unless they curtail exports, which is possible.

Even if the damage near the refineries is controlled quickly, widespread damage throughout the area will make it hard for refinery workers to get to work — the Shell plant, for instance, has more than 3,000 workers and contractors.  As you can see from this handy map, Valero (VLO) is losing 416,000 barrels a day in two hard-hit refineries and Marathon (MRO) will be down 546,000 barrels and, with 1-45 closed, it's likely to be a good week at least before they are full on-line again, probably 2 weeks. 

Of course, news is not all bad for VLO, who we're long on, as the refiners are benefitting from a widening crack spread – the cost between the barrels of oil they buy and the price of the refined products they can sell when they "crack" the barrel open.  We got aggressively long on VLO in our Aug 18th Butterfly Portfolio Review and we didn't know about Harvey at the time but we did know we expected a stronger than usual…
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