By August 30, 2017 0 Comments Read More →

Oil prices drop, gasoline surges, Harvey wallops US refining

Oil prices

Oil prices fell slightly in trading on Wednesday while gas prices rose significantly due to refinery shutdowns in the wake of Tropical Storm Harvey. Reuters photo by Rick Wilking.

Oil prices down slightly, gas futures up 5 per cent

Since making landfall last weekend, Hurricane Harvey has force the closure of nearly one quarter of the refining capacity of the United States, causing a surge in gasoline prices and a drop in oil prices.

Gasoline futures rose to another two-year high on Wednesday.  As of 1:08 p.m. EDT, gasoline futures were at $1.8765, after having hit $1.9140.

Trans Mountain ExpansionBrent crude was down 60 cents to $51.40/barrel and US WTI rose 4 cents to $46.48/barrel.  According to Reuters, the spread between Brent and US crude hit is widest mark in over two years and was recently at $5.39/barrel.

“Certainly the spread widening out between WTI/Brent is Harvey-driven. You’ve pretty much sapped a major chunk of Gulf Coast refining demand,” Anthony Scott, managing director of analytics at BTU Analytics told Reuters.

Refineries that account for 4.2 million barrels per day (b/d) of output were offline on Tuesday due to heavy rain and flooding from Harvey.  The massive storm has recently been downgraded to a tropical storm.

Officials say restarting refineries, even under the best conditions, can take a week or more.

“It will be a while before operations can return to normal and the U.S. refining industry is bracing itself for an extended shutdown,” Stephen Brennock of oil broker PVM told Reuters.

“Hopefully within the next week to two weeks, we’ll see refineries back online,” Christi Craddick, a commissioner with the Texas Railroad Commission, told World Oil. She added that 10 of Texas’ 25 refineries representing about half of the 6 million b/d refining capacity – are shut down.

Prices for refined products rose on Wednesday after sources reported Total’s Port Arthur, Texas refinery was shuttered by a power outage related to Harvey.

Diesel futures rose by 1.7 per cent to $1.6945 a gallon, after having touched their highest since January at $1.7161. Gasoline margins jumped, as the gasoline crack spread rose 12.5 per cent to $23.45/barrel.

“Crude is always easier to replace than products,” Olivier Jakob, analyst at Petromatrix told Reuters. “If the refineries stay shut for more than a week or 10 days, it’s going to be very problematic.”

Along with the impact on US Gulf coast refining, Tropical Storm Harvey has affected US crude production.  Goldman Sachs says about 15 per cent of total output has been disrupted.

With refineries impacted and production down, one pipeline, the Explorer pipeline, is shut down while the Colonial Pipeline is running at reduced rates.

On Wednesday, the US Energy Information Administration reported that US crude inventories fell by 5.4 million barrels last week, much higher than the 1.9 million barrels anticipated by analysts.

Prior to the arrival of Harvey, refining capacity in the US had risen to 96.6 per cent, the highest since 2005.  That number is expected to plummet due to numerous shut-ins at US Gulf refineries.

“If $26 oil didn’t destroy Houston, Hurricane Harvey is not going to destroy Houston,” said Patrick Jankowski, senior VP of research for the Greater Houston Partnership.

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Posted in: Energy Financial

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