What happens when oil refineries shut down from a tropical storm
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 Harvey 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 fell. 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 multiple refinery shutdowns in the Port Arthur, Beaumont and Houston areas, as plants further west restart. The storm is also affecting the distribution of crude and product 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.
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.
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.
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.