Hurricane Harvey drops oil prices down, boosts gasoline

Oil prices fell, despite a steep reduction in production in the Gulf as well as a drop in Texas onshore production due to Hurricane Harvey. The Beaumont Express photo by Giuseppe Barranco (AP).

Oil prices fall despite disruption in Libyan production of nearly 400,000 b/d

Massive flooding on the US Gulf Coast caused by Hurricane Harvey has forced the closure of a number of refineries in the area, boosting gasoline prices and pummelling oil prices, specifically US crude oil futures.

As of 1:17 p.m. EDT, US WTI was down over 3 per cent to $46.35/barrel and Brent crude was down by 56 cents to $51.85/barrel.  According to Reuters, the WTI discount versus Brent increased to as much as $5.48/barrel, the widest in two years.

“The reduced inputs to those Gulf refineries will result in an increase in crude inventories,“ Tony Headrick, energy market analyst at CHS Hedging told Reuters, ”That outweighs the outages in crude oil production from the storm.”

Prompt US gasoline differentials in the Gulf Coast jumped to a five-year high.  Reuters reports spot prices for US gasoline futures were up 7 per cent to $1.7799/gallon, the highest since July 2015.  By 12:30 p.m. EDT, prices had eased to $1.7346.

In total, Texas and Louisiana have a refining capacity of 8.9 million b/d.  Experts estimate Hurricane Harvey has taken over 2 million b/d of refining capacity offline.  As of Sunday, about 22 per cent, or 379,000 b/d of Gulf production was idled due to Harvey, according to the US Bureau of Safety and Environmental Enforcement.

Harvey also closed down some onshore US production, possibly as much as 300,000 b/d, according to trading sources.

The US National Hurricane Center says Harvey will likely stall close to the shore through Tuesday, causing flooding areas in Texas and Louisiana.

So far, Houston, Galveston and Corpus Christi have closed their ports along with a number of refineries.

Reuters’ sources report the largest refinery in the US, Motiva Port Arthur refinery in Texas, is considering shutting down.  As a result, US traders are looking for oil product cargoes from North Asia and transatlantic fuel exports from Europe are expected to surge.

“Global refining margins are going to stay very strong,” Olivier Jakob, managing director of Petromatrix told Reuters.

“If (U.S.) refineries shut down for more than a week, Asia will need to run at a higher level, because there’s no spare capacity in Europe.”

Harvey is not the only factor in reduced oil production.  In Libya, pipeline blockades by militia brigades cut the OPEC country’s output by nearly 400,000 b/d.