Is the rebound in oil a good thing? Well if you consider that perhaps it is a sign that things on the East Coast may have a chance at some sense of normalizing, then that would be a good thing. Yet the truth is, it may be too soon for the market to be reacting to the rebound in demand.
The late day spike seemed to start in Brent crude and could be a sign of the market growing uneasy with the violence on the Saudi-Yemen border. Brent crude spiked late in the session on a report that two Saudi border guards were killed in a terror attack on the Yemen border. The tensions seem to rise even more when Saudi Arabia abruptly changed its Interior Minister.
The surge in Brent crude also was helped by the fact that New York Harbor is again up and running and taking imports as ships are backed up ready to offload cargo. Supply is going to flood in with the waver of the Jones act as well as the dropping of import tax. The U.S. Department of Energy last week released two million gallons of heating oil from the reserve terminal in Connecticut. It is clear that supply will come in faster than demand.
As I have been saying for a week, Hurricane Sandy is not a supply story but a demand destruction event. Millions of barrels of oil that would have been spent on a daily basis are sitting in a tank or a ship. The back of imports is one of the reasons why heating oil, as I predicted, led the recent sell off. Not only did we see supply back up in Europe but also the billions of gallons of jet fuel that did not burn as more than 20,000 flights were canceled.
Still reports that the Bayway refinery may be down was a bit disappointing. Reuters reported that Phillips 66 said 238,000 barrels-per-day Bayway refinery in Linden, New Jersey, will resume operations in two to three weeks, after Hurricane Sandy caused flooding at the plant. The company said about 185 barrels (7,770 gallons) of oil spilled at the refinery after Sandy hit. The spill is being cleaned up by the company, along with the U.S. Coast Guard and the New Jersey Department of Environmental Protection. Phillips 66 reopened its Linden, New Jersey terminal on Friday and is ramping up operations. The terminal will be in full service at the end of the week and has adequate supplies of fuel, the company said in a statement.