Flooding from tropical storm Harvey caused ongoing large-scale U.S. refinery outages on Tuesday, while crude prices rose on the back of supply disruptions in Colombia and Libya.
Flooding from tropical storm Harvey caused ongoing large-scale U.S. refinery outages on Tuesday, while crude prices rose on the back of supply disruptions in Colombia and Libya. Refinery shutdowns from the storm helped push U.S. gasoline prices to $1.7799 per gallon on Monday, the most since 2015, although they receded slightly to $1.7374 per gallon by 0532 GMT on Tuesday. U.S. West Texas Intermediate (WTI) crude futures rose 23 cents, or 0.5 percent, to $46.80 a barrel, after falling more than 2 percent in the previous session. International Brent crude futures were up 21 cents, or 0.4 percent, at $52.10 per barrel.
Massive floods caused by Harvey forced several refineries to close along the U.S. Gulf Coast, and while some refineries were starting to prepare for re-starts, heavy rains are expected to last through Tuesday and Wednesday after already causing catastrophic flooding in Houston. Harvey, which has been downgraded to a tropical storm from a hurricane, has affected oil refiners more than crude producers. Sources said Motiva Enterprises will decide on Tuesday morning whether to shut the 603,000 barrel-per-day (bpd) Port Arthur, Texas, refinery, the nation’s largest, because of flooding. “U.S. government statistics and media reports indicate that around 2-3 million bpd of refining capacity is offline or in the process of shutting down,” Barclays bank said on Tuesday.
“More than 500,000 bpd of oil production… is offline,” it added. Barclays bank said the storm’s impact was “likely to linger for several more weeks.” “The shuttering of refining capacity in the Houston area will have a large impact on demand for crude for a while,” said Greg McKenna, chief market strategist at futures brokerage AxiTrader, adding it would likely “see crude inventories build up.” The United States has 141 oil refineries as of Jan. 1, with a total capacity of 18.6 million bpd, according to the Energy Information Administration. Texas is home to 30 of those with a capacity of 5.7 million bpd.
The expected U.S. crude build-up on Tuesday widened the WTI discount to Brent to $5.64 per barrel, its widest in over two years. Crude markets were also looking at disruptions in Libya and Colombia. In Libya, the 120,000 bpd Zawiya oil refinery was working at only half its capacity due to the shutdown at the Sharara oilfield, according to a refinery source. Sharara, which at 280,000 bpd is the OPEC member’s largest oilfield, has been shut for around a week because of militia blocking a pipeline linking it to the Zawiya oil terminal.
In Colombia, a bomb attack by leftist ELN rebel group has halted pumping operations along the country’s second-largest oil pipeline, the 210,000 bpd Cano-Limon Covenas, sources from the military and state oil company Ecopetrol said. Despite these disruptions in supplies, analysts said there are still ample supplies of crude, resulting in ongoing low prices. “We are thus lowering our Brent oil price estimates to $55 per barrel from $60 per barrel in 4Q17 (and) to $57 per barrel from $64 per barrel in 2018,” Jefferies bank said.