Hurricane Harvey was upgraded to a Category 4 storm just before making landfall at Rockport in Texas late last Friday. By Saturday afternoon, the hurricane was downgraded to a tropical storm. However, the rainfall is expected to continue this entire week, causing catastrophic flooding.
With the hurricane warning last week, the markets saw a hike in oil prices, with gasoline going up (Gasoline futures went up a quick 3%) and crude going down (West Texas Intermediate Crude went down 2%). The crack space widened to $24 and was expected to widen further before stabilizing.
The first ripples of the impact of Hurricane Harvey are being felt now. The combined refining capacity of the various refineries in Texas adds up to 5.6 million barrels per day. Of this, more than 2 million barrels of oil per day have gone offline. The met office has warned that there will be more rain to follow in the coming days since Harvey is a slow moving storm. This means gasoline production will be severely curtailed.
According to data released by the US Bureau of Safety and Environmental Enforcement, the production of 22% (379,000 barrels of crude oil) of the Gulf were idled because of the storm. Another 300,000 barrels of on shore production have also been idled.
While a number of refineries shut down production on Friday before the storm, especially in areas predicted to be directly in the path of the storm, by Sunday, a lot of the oil giants followed suit. Shell’s Deer Park refinery, one of the largest in the US with a crude oil production capacity of 340,000 barrels/day, shut down on Sunday. Petrobras’ Pasadena refinery, which has a capacity of 110,000 barrels/day followed next. Exxon Mobil’s Baytown refinery also shut down, which has a massive capacity of 500,000 barrels/day. Phillips 66’s Sweeny Texas Refinery (200,000 barrels/day) has also been shut down.
Texas and the Gulf Coast has one of the most concentrated areas of energy infrastructure in the world. Huge refineries dot the coast of Texas, and the gulf itself is crisscrossed with oil and natural gas pipelines which link the production rigs in the gulf to the refineries on land. Damage to this infrastructure could not only cause a huge dent in the US oil production (the Texas area accounts for 32% of the country’s total oil production) cause environmental damage on a global scale. The Magellan pipelines company’s largest pipeline from the Gulf in Houston is shutting down, meaning the oil supply to a number of refineries in that area is going to be negatively impacted.
The import and export terminals in Corpus Christi have been closed. The Ship Channel – America’s busiest shipping channel – between Aransas Pass and Port Aransas has been closed for the duration of the storm. In addition, the production at Marathon’s Galveston Bay Refinery and the Access Industries plant at Houston (260,000 barrels a day) have also curtailed production because of the closure of the Channel.
Long lines at gas stations can been seen in Houston, as a gasoline shortage is beginning to emerge. Gasoline prices have already jumped 3 cents over the weekend.
Asian markets were the first to respond, with oil prices going up in Hong Kong and Singapore this morning. Gasoline futures rose by 6%, at $1.7666 per gallon, Brent Crude traded at $52.58 (up 0.32%) per barrel, US Crude was at $47.71 (a rise of 0.33%) and Crude oil saw a jump of 0.9%. Mexico is expected to feel the impact of the storm as it import a lot of its gasoline from this area.