U.S. Gasoline at Two-Year High as Harvey Shuts Largest U.S. Refinery

(Bloomberg) 

Gasoline hit a new a two-year high as investors assess the impact of refinery outages and restarts as Harvey moves away from the Houston area.

With the storm sliding farther inland over Southwestern Louisiana, Motiva Enterprises LLC’s Port Arthur refinery, the country’s biggest,  began a controlled shutdown. The disruption helped send motor fuel up 5.7 percent in New York, while oil slipped. An Energy Information Administration report showed U.S. crude stockpiles slid for a ninth week, though production — often given more weight by traders — continued to rise last week.

“The market right now is more worried about the tropical storm than they are about the weekly inventory,” said Matt Sallee, who helps manage $16 billion in oil-related assets at Tortoise Capital Advisors LLC, by telephone. “This storm is basically very effective in its path of shutting down refinery capacity.”

Harvey, the strongest storm to hit the U.S. since 2004, is throwing the energy market into disarray, leading to refinery shutdowns in the Port Arthur, Beaumont and Houston areas, as plants further west begin to restart. The storm is also affecting the distribution of crude and products on pipelines. Flooding from storm Harvey is “now the greatest threat” to U.S. Gulf Coast energy infrastructure, according to Goldman Sachs Group Inc. analysts.

Storm Harvey’s Impact on Oil Markets Shown Through Charts

Gasoline for September delivery, which expires Thursday, climbed 10.14 cents to settle at $1.8847 a gallon on the New York Mercantile Exchange, the highest level since July 2015. The more-active  October contract rose 3.56 cents to $1.6375 a gallon.

West Texas Intermediate for October delivery declined 48 cents to end the session at $45.96 a barrel on the New York Mercantile Exchange, the lowest level in five weeks.

Eyes on Refineries

Brent for October settlement, which expires Thursday, dropped $1.14 to settle at $50.86 on the London-based ICE Futures Europe exchange. The global benchmark traded at a premium of $4.90 to WTI.

Motiva’s Port Arthur, Texas refinery has a capacity to process 605,000 barrels of oil a day, according to data compiled by Bloomberg. When it can restart will depend on the recession of flood waters, the company said. Total SA’s refinery in the same area also had a power loss, which led to a shutdown while Valero Energy Corp.’s nearby facility was also said to be shutting.

“The market is looking at this and thinking that at least for now, demand for crude will be a bit less,” Bart Melek, head of global commodity strategy at TD Securities in Toronto, said by telephone.

While Port Arthur-refineries suspend operations, others began to restart, leading gasoline futures to ease off the intraday high reached during the session. Valero said startup was underway at its Three Rivers refinery, as well as at its Corpus Christi plant. Marathon Petroleum Corp.’s Galveston Bay plant is said to restart by Thursday and its Texas City refinery is restarting.

There “was a light of hope that maybe these refineries can come back online, maybe the damage won’t be that bad,” said  Phil Flynn, senior market analyst at Price Futures Group Inc. in Chicago.

U.S. crude stockpiles fell by 5.39 million barrels to 457.8 million last week, the lowest level since January 2016, EIA data showed Wednesday. At the same time, gasoline supplies rose by 35,000 barrels and crude production also increased.

Oil-market news:

Colonial Pipeline sees its entire pipeline system slowed because of lack of supply out of the Houston and Hebert, Texas areas, according to a shipper bulletin. The U.S. Coast Guard allowed tugs and barges to move in the port of Corpus Christi. Losses from Harvey could range from $48 billion to $75 billion, up from an earlier estimate of $42 billion, according to risk modeler Chuck Watson of Enki Research.