An oil tank damaged by Hurricane Harvey is seen near Seadrift, Texas, August 26, 2017. - Reuters
SINGAPORE: Gasoline prices hit fresh 2-year highs on Thursday as flooding from tropical storm Harvey knocked out almost a quarter of U.S. refineries, while crude oil prices fell again on the resulting drop in demand.
Harvey has battered the U.S. Gulf coast since last Friday, ripping through Texas and Louisiana at the heart of the U.S. petroleum industry. At least 4.4 million barrels per day (bpd) of refining capacity was offline, or almost a quarter of total U.S. capacity, based on company reports and Reuters estimates.
Fearing a gasoline supply squeeze, U.S. gasoline prices
Crude prices, by contrast, fell as the closure of so many U.S. refineries led to a slump in demand for the most important feedstock for the petroleum industry.
U.S. West Texas Intermediate (WTI) crude futures
"The flooding from Hurricane Harvey shut the largest refinery in the U.S., pushing gasoline prices to a two-year high. In contrast, oil prices retreated," ANZ bank said.
Meteorologists said that Harvey could be the worst storm in U.S. history in terms of financial cost.
"The economy's impact, by the time its total destruction is completed, will approach $160 billion," said Joel N. Myers, president and chairman of meteorological firm AccuWeather.
Other estimates have put the economic losses from Harvey at under $100 billion.
And although Harvey keeps getting weaker, meteorologists say more floods are expected.
The National Hurricane Center (NHC) said in its latest update that flooding and heavy rain continued in eastern Texas and western Louisiana.
AccuWeather also said that "the worst flooding from Harvey is yet to come as rivers and bayous continue to rise in Texas with additional levees at risk for breaches and failures."
Beyond Harvey, U.S. commercial crude oil stocks fell by 5.39 million barrels last week, to 457.77 million barrels, according to data released Wednesday by the U.S. Energy Information Administration.
That's 14.5 percent down from record levels reached last March, and it is below 2016 levels.
This came on the back of record U.S. gasoline demand of 9.846 million bpd last week, and as U.S. refining utilization rates rose to 96.6 percent, the highest percentage since August of 2015.
However, the data was collected before Hurricane Harvey hit the Gulf Coast. - Reuters
Earlier report:
Gasoline jumps, crude down; Harvey shuts 24% of US refining
NEW YORK: Gasoline futures surged on Wednesday to a two-year high while crude oil was down, as flooding and damage from Tropical Storm Harvey shut nearly a quarter of U.S. refinery capacity, curbing demand for crude while raising the risk of fuel shortages.
About 4.4 million barrels of U.S. refining capacity has been shut by Harvey, based on company reports and Reuters estimates. That represents nearly a quarter of U.S. refining production, and restarting plants under even the best conditions can take a week or more.
“As the refineries restructured the more competitive refineries have expanded," said Antoine Halff, Director of the Global Oil Markets Research Program at Columbia University, "The capacity is now in the hands of a few very large players in a few very large plants.”
“It means if something goes wrong it’s a big impact.”
On Wednesday, Valero said that due to flooding they were fully shutting their Port Arthur refinery.
U.S. gasoline futures were up 5.9 percent to settle at 1.8847 a gallon, having hit $1.9140, the highest since July 2015.
Brent oil, the international crude benchmark, settled down $1.14, or 2.2 percent, to $50.86 a barrel. U.S. crude settled down 48 cents, or 1 percent, to $45.96.
The spread between Brent and U.S. crude hit its widest in more than two years on Wednesday before settling at $4.90.
Gains intensified for refined products after sources on Wednesday said Total's Port Arthur, Texas, refinery had been shut by a power outage resulting from the storm.
Gasoline margins
"If the refineries stay shut for more than a week or 10 days, it's going to be very problematic," said Olivier Jakob, analyst at Petromatrix.
While infrastructure restarts following the storm are expected to extend into the coming weeks, on Wednesday Marathon Petroleum Corp was restarting its Galveston Bay Refinery, said sources familiar with plant operations.
Harvey made landfall on Friday as the most powerful hurricane to hit Texas in more than 50 years, resulting in the death of at least 22 people.
Harvey was forecast to drop another 3 to 6 inches of rain on Wednesday, with a storm surge of up to 4 feet along the western part of Louisiana's Gulf Coast.
With gasoline futures climbing, the AAA said retail gasoline prices were up 6 cents from a week ago at $2.404 per gallon of regular gasoline nationwide. Some states, like Georgia, have seen prices rise as much as 12 cents a gallon as reduced supply has hampered distribution.
In addition to shutting oil refineries, about 1.4 million bpd of U.S. crude production has been disrupted, equivalent to 15 percent of total output, Goldman Sachs said in a note.
The effects of the damage and shutdowns are expected to ripple for weeks. Explorer shut two main lines carrying fuel to the Chicago market Tuesday. Colonial Co, which moves more than 3 million barrels of fuel per day from the Gulf Coast to the East Coast, says many lines will be shutdown with no projected restart time.
The market shrugged off weekly inventory figures from the U.S. Energy Department, which reflect stocks prior to the storm.
Crude inventories
On Wednesday, industry sources told Reuters that Shell staff are reboarding the Perdido oil and gas platform in the Gulf of Mexico in preparation for a restart.
West African crude differentials were steady as strong margins countered Harvey's impact. - Reuters
Earlier report:
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