Hurricane Harvey hits Texas oil industry and crude prices
Record flooding in Texas, cripples 4.4m daily barrels of refining capacity
A gas station submerged under flood waters from Tropical Storm Harvey in Rose City, Texas. Photograph: Reuters
Crude futures fell on Friday, partly reversing sharp gains from the previous session, amid ongoing turmoil in the oil industry following Hurricane Harvey with nearly a quarter of US refining capacity offline.
US West Texas Intermediate (WTI) was down 35 cents, or 0.7 per cent, at $46.88 barrel at 6.41GMT.
The contract rebounded 2.8 per cent on Thursday but is still heading for a weekly decline of 2.0 per cent.
The new Brent contract for November delivery was down 21 cents, or 0.4 per cent, at $52.65 barrel.
The contract for October delivery, which ended trading on Thursday, closed up $1.52, or 2.99 per cent, at $52.38 a barrel.
US gasoline futures have rallied more than 28 per cent to a two-year high above $2 a gallon, buoyed by fears of a fuel shortage days ahead of the US Labour Day weekend’s traditional surge in driving.
Gasoline for September delivery settled up 25.52 cents, or 13.5 per cent, at $2.1399 on the last day of trading in the contract. Gasoline for October delivery was down 0.6 per cent at $1.7684.
“It looks like everyone thinks that the hurricane will affect refining more than production,” said Tony Nunan, oil risk manager at Mitsubishi Corp. “Production will come back faster than refining so it is just going to exacerbate the situation where there’s too much oil.”
Hurricane Harvey has killed more than 40 people and brought record flooding to the US oil heartland of Texas, paralysing at least 4.4 million barrels per day (bpd) of refining capacity, according to company reports and Reuters’ estimates.
The US Department of the Interior’s Bureau of Safety and Environmental Enforcement said that roughly 13.5 per cent of oil production in the Gulf of Mexico was also shut in on Thursday.
The US government tapped its strategic oil reserves for the first time in five years on Thursday, releasing 1 million barrels of crude to a working refinery in Louisiana. Traders were also scrambling to redirect fuel to the United States.
US crude stocks fell sharply last week even as refineries hiked output in the run up to Harvey’s approach, the Energy Information Administration said on Wednesday.
That should encourage Opec and non-Opec members that are trying to restrict supplies to boost prices that are about half the level of three years ago.
Output from the Organisation of Petroleum Exporting Countries (Opec) in August fell 170,000 bpd from a 2017 high, a Reuters survey found, as renewed unrest cut supplies in Libya and other members stepped up compliance with their production-cutting deal with non-Opec countries including Russia.
But market rebalancing may take longer than expected if production comes back in the United States and refiners cannot feed that output into flooded refineries.
“This hurricane has thrown a spanner in the works and rebalancing is delayed further than expected,” Nunan said.