Gasoline Jumps After Harvey Shuts U.S. Refiners –
Harvey was the primary hurricane to hit U.S. refineries because the country’s emergence as a growing producer and exporter of oil, so the impact is expected to be felt further afield than with previous tropical storms. Harvey struck the Texas coast as a Category 4 hurricane on Friday, but was later downgraded to a tropical storm.
Gasoline futures for September delivery rose 5.07 cents, or 3%, to $1.7173 a gallon on the new York Mercantile Exchange. Diesel futures rose 1.36 cents, or 0.8%, to $1.6359 a gallon.
Energy companies are still assessing the damage from Harvey, after the storm shut down refineries, petroleum products in refinery limited including Exxon Mobil Corp.’s Baytown facility near Houston, second in size only to Saudi Arabian Oil Co.’s Port Arthur refinery, which is within the storm’s projected path.
“We’re just watching how this storm continues to develop. It seems like the worst case scenarios keep playing out,” said John Kilduff, founding partner at Again Capital. “This might linger for weeks.”
It may well take weeks or even months to get new electrical equipment and other parts installed to repair damage from flooding. Harvey’s path cut right through the heart of U.S. oil infrastructure, with the Texas coast being home to nearly 30% of the country’s refining capacity.
The reduced refining capacity is expected to hit U.S. crude demand, while also having a knock-on impact on global futures markets. On the brand new York Mercantile Exchange, West Texas Intermediate futures were trading down 2.6% at $46.62 a barrel. Brent crude, the worldwide oil benchmark, fell 1.3% to $51.74 a barrel.
Refineries which can be running may be having trouble accessing crude. In one indication, the U.S. Department of Energy turned down a request to tap the Strategic Petroleum Reserve, citing storm conditions that made it impossible to release oil from the reserve. A spokeswoman said in a press release that the department “stands ready to supply assistance as deemed necessary, to include any release of the Strategic Petroleum Reserve.”
“We already heard that some Asian refiners are attempting to send gasoline to the U.S. this is along with the traditional European supply, so I think some refineries in the U.S. might take time to restart,” said Ehsan Ul-Haq, a director at energy consultancy Resource Economist Ltd.
Analysts said that South Korea and India produce gasoline that meets U.S. specifications and could therefore fill a few of the gap left by U.S. refiners in meeting domestic demand, although Europe was prone to fill the lion’s share.
“I feel for a couple of weeks the U.S. will need supplies from all around the world,” Mr. Ul-Haq said.
Latin American countries relying on U.S. gasoline or distillates will also have to search out alternative sources for their fuel, while Europe could look to the Middle East for added distillates to compensate for any fall in U.S. exports.
The storm in the U.S. halted activity at several big offshore oil-and-gas platforms in the Gulf of Mexico. The platforms account for roughly 22% of offshore oil production capacity within the Gulf.
Investors are also looking to the U.S.’s Energy Information Administration stockpiles data later this week, which could potentially cushion some of the impact on reduced supplies caused by Harvey. U.S. refiners produced record amounts of fuel during the petroleum products in refinery limited summer.
“The weekly EIA data will likely send some conflicting signals over the next few weeks — lower production, lower refinery demand with a likely build in stocks as oil produced further inland is unaffected and dumped into stocks — and could lead to prices whipsawing as we enter a seasonal refinery downturn,” Mr. Bell said.