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Floods in Great Plains putting a damper on oil markets

HollyFrontier oil refinery in Tulsa, Oklahoma. Photo: HollyFrontier Corporation

The Great Plains have been pummeled by severe thunderstorms day after day for almost two weeks, producing deadly tornadoes and super-sized hail. Another unfortunate but frequent by-product of severe storms is flooding. During these recent rounds of severe weather, the Arkansas River has risen to major flood levels at many locations, including Van Buren, Arkansas and Haven, Kansas (near Wichita), as well as the following areas in Oklahoma: Haskell, Muskogee, Ponca City and Tulsa. New record flood levels have been set at Ponca City and Van Buren.

Arkansas River at Van Buren, Arkansas sets new record flood level. Source: NOAA

The storms have not only flooded neighborhoods, but major business facilities, too. Last week, HollyFrontier Corporation (NYSE: HFC) suspended operations at its Tulsa oil refinery as a result of the Arkansas River flooding. The refinery is located near the west bank of the flooded river, at the intersection of South Union Avenue and West 17th Street. Company officials made the decision on Thursday, May 23, saying it would be a temporary shutdown until flood conditions improve.

“Due to high water in the Tulsa area, the HollyFrontier Tulsa Refinery is temporarily shutting down operations as a precautionary measure for the safety of our employees, contractors, community and operations,” HollyFrontier spokeswoman Liberty Swift said in a statement. “With more inclement weather expected, we encourage everyone in the community to heed the warnings from emergency management officials, be alert and stay safe.”

HollyFrontier oil refinery in Tulsa, Oklahoma. Photo: HollyFrontier

A publicly traded firm headquartered in Dallas, HollyFrontier employs about 650 full-time workers in Tulsa, where it has operated since 2009. The Tulsa refinery processes 125,000 barrels per day (b/d) of crude oil, providing gasoline and diesel in Oklahoma and across the Mid-Continent region of the U.S. HollyFrontier also has refineries in Kansas, New Mexico, Utah, Wyoming and Ontario, Canada.

According to FreightWaves Market Expert John Kingston, after a trading day Tuesday (May 28) that saw oil regain some of its declines from late last week, the market overnight into today (May 29) resumed its downward momentum. However, the oil decline this morning was not due to any significant petroleum news. Rather, as the global selloff in equities resumed, the oil complex went down with it. At approximately 7:45 a.m. EDT, the declines on the CME commodity exchange from the Tuesday settlement were 2.67 percent for West Texas Intermediate (WTI), 2.42 percent for Brent, 2.28 percent for RBOB gasoline and 1.86 percent for ultra low sulfur diesel (ULSD), which performed the strongest. The declines are coming after a day when there was actually bullish news.

SONAR Critical Events: Several oil refineries at risk from flooding in northeastern Oklahoma and southeastern Kansas, May 29, 2019.

Flooding is starting to impact the movement of crude oil and products in the U.S. With the delivery point for WTI at Cushing, Oklahoma, the flooding has the potential to have an outsized impact on that contract. According to S&P Global Platts, the Pony Express pipeline that takes oil out of Wyoming to Cushing is shut down. This is normally a 400,000 b/d pipeline. The closure of pipelines is not just impacting crude oil facilities, but product lines are also getting hit. This is impacting those markets, particularly gasoline. There are other unconfirmed reports of slow pipeline operations due to flooding-related issues. That has boosted the physical differential between the CME RBOB gasoline price and that in the Midwest cash market. According to one estimate, the differential has gained almost 12 cents/gallon in the past week because of water-related issues.

Arkansas River in Tulsa, Oklahoma forecast to remain at major flood stage for several days. Source: NOAA

The short-term forecast looks promising, with chances of severe storms fading for a while after today. But even after the “faucet” shuts off, the Arkansas River will remain at high levels heading into the weekend. The National Weather Service (NWS) is predicting the locations mentioned earlier to remain at major flood stages, with Little Rock reaching major flood stage by Saturday, June 1. Look for updated flood alerts on this interactive map.

Nick Austin

Nick is a meteorologist with 20 years of forecasting and broadcasting experience. He was nominated for a Midsouth Emmy for his coverage during a 2008 western Tennessee tornado outbreak. He received his Bachelor of Science in Meteorology from Florida State University, as well as a Bachelor of Science in Management from the Georgia Tech. Nick is a member of the American Meteorological Society and National Weather Association. As a member of the weather team at WBBJ-TV in Jackson, Tennessee, Nick was nominated for a Mid-South Emmy for live coverage of a major tornado outbreak in February 2008. As part of the weather team at WRCB-TV in Chattanooga, Tennessee, Nick shared the Chattanooga Times-Free Press Best of the Best award for “Best Weather Team” eight consecutive years.