Harvey's rains shut in more U.S. refineries, sending fuel prices higher

An oil tank damaged by Hurricane Harvey is seen near Seadrift, Texas, August 26, 2017. - Reuters

HOUSTON: U.S. fuel prices surged on Monday as two more Gulf Coast refiners cut output and a third considered reductions, leaving more than 13 percent of the country's refining capacity offline after Tropical Storm Harvey flooded plants and shut seaports.

The storm swung back over the Gulf of Mexico on Monday and was expected to bring another 10 to 15 inches (25 to 38 cm) of rain to the Houston area and up to 8 inches as far east as New Orleans, the National Weather Service said.

Marathon Petroleum Corp's Galveston Bay refinery in Texas City, Texas, cut production by half, sources familiar with plant operations said.

Lyondell Basell Industries' Houston refinery early on Monday also cut output by half to conserve crude supply, other sources said.

Meanwhile the nation's largest plant, Motiva Enterprises' [MOTIV.UL] 603,000-barrel-per-day (bpd) Port Arthur, Texas, refinery was considering shutting due to high water on the plant grounds and running with essential personnel only, two sources said.

The profit that refiners make per barrel of gasoline jumped as high as 21 percent in the first trading day following Harvey's landfall near Corpus Christi, Texas, late on Friday, as fears of short supplies gripped the market.

Gasoline for immediate delivery in the Gulf Coast hit five-year highs, traders said, while U.S. gasoline futures jumped as much as 7 percent to $1.78 per gallon, the highest since late July 2015.

In total, 2.45 million bpd of U.S. refining capacity was shut due to Harvey, which knocked out four refineries in South Texas before bringing flooding rains to plants near Houston.

Nearly 19 percent of oil production in the Gulf of Mexico has been shut, the U.S. Department of the Interior said on Monday.

The latest refining cutbacks were at Marathon's 459,000 bpd plant and Lyondell's 264,000 bpd Houston plant.

Marathon spokeswoman Stefanie Griffiths declined to comment. Lyondell and Motiva did not reply to requests for comment.

Oil prices fell as the refinery closings reduced demand, with U.S. crude futures dropping by more than 3 percent on Monday.

Among other Gulf Coast refiners, Exxon Mobil's 362,300 bpd Beaumont, Texas, refinery has cut production, the company said. It did not provide additional details. Earlier, Exxon halted production at its 560,500 bpd Baytown, Texas, plant.

Valero Energy's 335,000 bpd Port Arthur, Texas, refinery is running at or near maximum capacity but contending with flooding in the plant, sources said on Monday. Valero confirmed the plant is running, but has not commented on further.

Total SA 's 225,500 bpd Port Arthur, Texas, refinery is operating normally, sources said.

In the area where the storm first hit, Citgo Petroleum's refinery in Corpus Christi is preparing to begin its restart process as early as on Wednesday, sources said. A spokesperson did not reply to requests for comment.

Two other refiners who shut plants in the region, Valero and Flint Hills Resources, did not respond to requests for updates on their operations there. - Reuters

 

Reuters also reported separately:

HOUSTON: A hurricane in the heart of the U.S. energy industry is set to curtail near-record U.S. oil production for several weeks, with the impact expected to reverberate throughout the country and across international energy markets.

Harvey hit the Texas shore as a fierce Category 4 hurricane, causing massive flooding that has knocked out 11 percent of U.S. refining capacity, a quarter of oil production from the U.S. Gulf of Mexico, and closed ports all along the Texas coast.

Gasoline futures jumped as much as 7 percent to their highest level in more than two years in early Monday trading in Asia as traders took stock of the storm's impact.

The outages will limit the availability of U.S. crude, gasoline and other refined products for global consumers and further push up prices, analysts said.

Damage assessments could take days to weeks to complete, and the storm continues to drop unprecedented levels of rain as it lingers west of Houston, home to oil, gas, pipeline and chemical plants. And restarts are dangerous periods, as fires and explosions can occur.

So far, the federal government has not announced if it will release barrels of oil or refined products from the nation's Strategic Petroleum Reserve (SPR), which holds nearly 680 million barrels of oil.

The SPR was established in the 1970s to prevent supply shocks in the wake of an embargo imposed by several members of the Organization of the Petroleum Exporting Countries (OPEC).

"This is not like anything we have ever seen before," said Bruce Jefferis, chief executive of Aon Energy, a risk consulting practice. It is too soon to gauge the full extent of Harvey's damage to the region's energy infrastructure, he said.

More than 30 inches (76 cm) fell in the Houston area in 48 hours and a lot more rain is forecast, according to the National Weather Service.

The storm was felt from coastal ports to inland oil and gas wells. Oil producers in the Eagle Ford shale region of south Texas have halted some operations.

At least four marine terminals in the Corpus Christi area, an export hub for energy deliveries to Latin America and Asia, remained closed due to the storm.

"We just simply don't know yet the damage all this rain will have on Houston's energy infrastructure," said Andrew Lipow, president of energy consultancy Lipow Oil Associates LLC.

Texas refineries could be offline for up to a month if their storm-drainage pumps become submerged, he said.

As the storm churned towards Texas on Friday, U.S. gasoline futures rose to their highest level in three years for this time of year. Those gains came even before several large Houston area refiners, including Exxon Mobil Corp , halted some operations.

Exxon closed the second largest U.S. refinery, its 560,500 barrel-per-day (bpd) refinery in Baytown, Texas, complex because of flooding. Royal Dutch Shell Plc also halted operations at its 325,700-bpd Deer Park, Texas, refinery. The refinery may be shut for the week, it said.

Flooding on highways between Houston and Texas City nearer to the coast led Marathon Petroleum Corp to cut back gasoline production at the company's 459,000-bpd Galveston Bay Refinery in Texas City, said sources familiar with plant operations.

Marathon Petroleum employees were unable to drive to work and conditions at the plant forced the company to reduce gasoline output, said industry sources. Marathon spokesman Jamal Kheiry declined to discuss plant operations.

Not every plant in the region was hit. Operations were stable at the largest U.S. crude refinery, Motiva Enterprises' [MOTIV.UL] 603,000-bpd Port Arthur plant, the company said.

Motiva double-staffed the refinery's crew ahead of the storm, as did Total SA at the company's 225,500-bpd Port Arthur refinery, said sources familiar with plant operations.

Coastal refineries in Texas account for one-quarter of the U.S. crude oil refining capacity. All of those refineries have been impacted by Harvey since Thursday when refineries in Corpus Christi, Texas, shut in production ahead of the storm's landfall on Friday.

Colonial Pipeline, the largest mover of gasoline, diesel and other refined products in the United States, said its operations had not been affected by Harvey. Any disruptions to the conduit would send prices across the U.S. Southeast and Northeast soaring. Traders have been keeping a close eye on whether there will be an outage at the pipeline.

Citgo Petroleum Corp [PDVSAC.UL] and Flint Hills Resources [FHR.UL], two of the refiners that closed last week as the storm approached, did not provide updates about the status of their Corpus Christi refineries on Sunday. - Reuetrs