US Oil: Tropical storm Harvey wreaked havoc - Natixis

Bernard Dahdah, Research Analyst at Natixis, explains that tropical storm Harvey wreaked havoc on important oil refining areas in Texas. 

Key Quotes

“Recently, it was announced that Motiva Enterprises is shutting down operations at America’s largest oil refinery, joining other refiners in shutting down operations.  In a statement, the company said that the plant was operating at about 40% of its 605,000 barrel-a-day capacity.”  

“It is estimated that around a dozen other refineries in Texas have at least gone partially offline since last week, with a combined capacity of around 4mn barrels a day. US refining capacity is probably close to the lowest level since 2008, when Hurricane Ike ravaged the Gulf Coast.”

“That said, with the storm moving away from south Texas it is reckoned that at least three companies are preparing to restart refineries in Corpus Christi.  The combined plants have more than 930,000 barrels a day of refining capacity.”  

“Flooding is not the only issue facing refiners, Marathon Petroleum is said to be shutting because pipeline disruptions have interrupted crude supply.  Logistically speaking, port closures are another problem: Corpus Christi’s port is expected to resume normal operations by the 4th of September but the Port of Houston has not set a date of when they intend to reopen.” 

“The interaction between pipeline companies and refineries could also become problematic if refinery closures for longer than next week.  The closure of refineries means that pipelines have few places to deliver oil from the West Texas shale basins and this could disrupt local production.”   

“Despite the supply issues currently being faced, lower demand is watering down any potential sharp rise in prices.  Texas is the second largest consumer of gasoline (after California) and the largest diesel consumer in the country.  It will be weeks before infrastructure is repaired and normality is resumed, meaning these impacts will reverberate for the weeks to come.” 

“Finally, with lower demand for US oil due to Tropical Storm Harvey, the Brent-WTI spread has widened beyond $5/bbl,  its highest levels since February last year.  North Sea maintenance and rising US production were already contributing to the widening spread, but lower demand from US refiners due to the storm has exacerbated this in recent days.”