Harvey throws a wrench into U.S. energy engine

  • Harvey throws a wrench into U.S. energy engine

Harvey throws a wrench into U.S. energy engine

First, the latest spike in the spread is largely due to the effects of Hurricane Harvey, which should mostly reverse before long. The average price in Texas rose 2 cents to US$2.19 per gallon.

That storm left crucial oil pipelines and refineries in the Gulf Coast region unable to operate for weeks. In the short run, the USA could see a bit of a glut of lighter forms of oil, while heavy oil producers overseas will be hit by a temporary interruption of purchases from Texas refiners.

Oil prices fell on August 24 but even with oil weakness, E&Ps saw a 0.2% gain, Raymond James analyst J. Marshall Adkins said August 25.

Valero Energy Corp., whose two big Corpus Christi refineries escaped damage, said it was working with federal and Texas agencies and its business partners to determine what infrastructure work was needed to be able to resume refinery operations.

Most of the refinery shutdowns over the weekend were preventive measures and some refineries are reportedly expected to restart as early as this week-but the continued rainfall and the possibility of flooding could bring about permanent damage to some facilities. The amount being charged for gasoline will likely go up as the crippled energy industry in and around Houston continues to deal with the historic storm's impact. On Wednesday, Exxon announced the shutdown of its Beaumont, Texas refinery as well due to "operational issues" caused by Harvey. Europe will also be incentivized to send excess fuel supply to the U.S.

US prices are expected to spike over the next week or more as about 10 refineries representing more than 15 per cent of the nation's refining capacity are closed, including ExxonMobil, Shell and Phillips 66 operations. Some states, like Georgia, have seen prices rise as much as 12 cents a gallon as reduced supply has hampered distribution.

Nationally, prices were up four cents from last week, at $2.37, one of the largest one-week national gas price surges seen this summer.

USA crude inventories fell by 5.78 million barrels last week, the API industry group reported on Tuesday, suggesting a gradual tightening of the US oil market.

On Wednesday, Motiva reported that it is shutting down its 603,000-barrel-a-day refinery in Port Arthur, Texas. Saudi Arabia and Russian Federation are pushing to extend their deal to limit crude oil production for another three months, WSJ reports.

That means the USA has 61 percent more oil stockpiled than in the summer of 2008 before Hurricane Ike and 52 percent more than before Hurricane Rita in 2005. Ports along the Texas coast, including Houston and Corpus Christi, have been closed, and now some in Louisiana are shut as well.

Yet crude remains in ample supply.

Kloza said retail prices haven't gone up more significantly because gas stations "don't want to be the evil guy who raises prices during the storm".

"If the refineries stay shut for more than a week or 10 days, it's going to be very problematic", said Olivier Jakob, analyst at Petromatrix.