Harvey sends gasoline prices climbing, deepens Venezuela's suffering
Hurricane Harvey’s strike at the heart of the U.S. oil and gas industry caused backups throughout the petroleum system on Monday, from storage tanks in Cushing, Oklahoma, to tankers waiting for gulf ports to reopen, and set U.S. gasoline prices soaring to the highest levels in two years.
The shutdown of about 2.2 million barrels, or 12 percent, of U.S. refining capacity drove gasoline prices up as much as 6.8 percent since Friday. Gasoline prices eased off later in the day, however, finishing up 4.4 percent and up about 8 percent in the past week.
Analysts said that the imminent end of the summer driving season and substantial inventories of gasoline and diesel would help dampen any price increase from Harvey.
Huge disruptions remain. The massive rainfall has restricted ship traffic in ports all across the Texas Gulf Coast from Corpus Christi to the Sabine Pass, with further restrictions likely in Louisiana as the storm crawls to the east. Bloomberg News reported that 14 tankers were in a logjam waiting to deliver crude oil.
The Port of Freeport was losing some of its water depth as silt washed from the bay was building up, according to S&P Platts, an analysis firm.
Robert McNally, president of The Rapidan Group, a consulting firm, said that the storms brought to a halt imports of crude oil from and exports of gasoline to Venezuela, putting more pressure on the country’s economy and fueling more disarray there.
He noted that the Trump administration has been reluctant to impose oil sanctions on Venezuela. “That debate just got resolved,” McNally said, “and it will add pressure on Venezuela as long as this lasts.”
He said that the United States imports about 700,000 barrels a day of heavy crude oil from Venezuela and exports about 75,000 barrels a day of refined petroleum products. Other shipments of refined products with supplies destined for Latin America were also curtailed.
The storm was also putting a damper on demand throughout the Gulf Coast region, and the closing of refineries and pipelines in Texas was creating a glut for pipelines further north that ordinarily funnel supplies to Gulf Coast refiners.
Cushing, Oklahoma, a pipeline and storage hub, serves as the price point for the benchmark West Texas Intermediate quality crude. Amid the pipeline backups, the benchmark West Texas Intermediate prices fell more than 2.5 percent on Monday, while the international benchmark Brent crude oil fell only 0.84 percent by midafternoon.
The storm also revived a long-running debate about the Strategic Petroleum Reserve, which holds 679 million barrels of crude oil in four locations in Texas and Louisiana. The reserve was created to deal with an embargo by foreign crude suppliers, in the wake of the embargo imposed in the early 1970s by the Arab members of the Organization of the Petroleum Exporting Countries.
“What you need is a gasoline and diesel SPR and it has to be in different regions,” said PIRA Energy’s managing director of global oil Richard Joswick. “You have to have it when you need it.”
Many analysts have urged the government to add refined product inventories in other parts of the country, like the northeast, which depend heavily on gasoline and diesel fuel from the Gulf region. The Colonial pipeline that supplies much of the northeastern United States remained open, but analysts were watching that closely since part of the pipeline begins in waterlogged Houston.
Joswick said that it was still too early to be certain, but that many oil and gas industry operators had learned from Hurricane Katrina and moved some of their equipment higher up to guard against flooding. “What that means is that it is less likely we’ll have the month-long outages we had post-Katrina.”
The Environmental Protection Agency issued temporary waivers allowing refiners to use reformulated fuels under the Clear Air Act to ensure ample supplies of gasoline and diesel. The Texas Commission on Environmental Quality asked the EPA for the waivers, which will go into effect in 30 of Texas’ 254 counties. The waivers will last until Sept. 15.
Meanwhile, Valero, the nation’s largest refiner, said it was looking at ways to restart the two refineries it shut down in Corpus Christi. The company said in an update that it would seek “to determine the availability of necessary transportation and logistics infrastructure to resume refinery operations.”