Oil dips as U.S. floods cause large-scale refinery shutdowns

Trevor Jackson
September 1, 2017

Those gasoline inventories can now be drawn down to make up for the 10 refineries that have been shuttered by Harvey.

The West Coast price for diesel increased three cents to $2.91 per gallon, the Gulf Coast price rose two cents to $2.43 per gallon, the East Coast price increased almost one cent, remaining at $2.62 per gallon, and the Rocky Mountain region witnessed a jump of less than one cent to $2.72 per gallon.

That's why the US has about 230 million barrels of gasoline stockpiled, more than before the storms in 2005 and 2008.

But also of importance is the idling of both offshore and onshore oil production in the region, with more than 320,000 bpd of offshore output remaining idled as of Wednesday.

But down the street, at the QT, people fumed at what they will have to become accustomed to - prices over $2.44 a gallon. Prices are likely to rise even more in the Gulf Coast.

In cash trading, the spread between Gulf Coast gasoline prices and benchmark futures rallied further, a day after hitting a five-year high in anticipation of constrained supply.

Analysts at Goldman Sachs and Stifel said they expected USA infrastructure outages to last several months but said it was hard to estimate the exact damage.

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"However, Hurricane Harvey has impacted crude oil production and refinery operations in the region", EIA stressed.

Still, Harvey has dealt a serious blow to refineries, ports and production in the U.S. Gulf Coast, which is the nation's key energy hub. While it has been downgraded to a tropical storm, ongoing torrential rains have flooded numerous refineries in Texas and Louisiana, the heart of the American petroleum industry. Goldman Sachs said in a research note that an estimated 3 million barrels per day of refining capacity was offline, as of Monday.

"US gasoline prices increased by 3% at $1.8380 per gallon, the most since 31 July 2015". In addition, refineries that are still online are also slowing run rates. At least one, ExxonMobil's (XOM) huge Baytown facility, has suffered damage. On Wednesday, Exxon announced the shutdown of its Beaumont, Texas refinery as well due to "operational issues" caused by Harvey. That alone could disrupt operations at Gulf Coast refineries.

According to a report from AltaCorp Capital in Calgary, mid-continent refining profit margins have jumped by about 20 per cent this week, a development it said will boost the bottom lines of Calgary-based Husky (TSX:HSE) and Cenovus (TSX:CVE).

All of this means there is a lot less supply of gasoline, leading to higher gas prices. FGE estimates that flooding may slash gasoline demand by about 150,000 barrels per day.

However, the extreme flooding could prevent some refinery workers from being able to return to work.

Other reports by TheDailyFarc

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