Oil prices dip on refinery shutdown

Kristopher Drake
September 1, 2017

That includes the biggest USA refinery, Motiva's Port Arthur facility, which can handle more than 600,000 barrels a day.

Canadian-owned refineries are expected to register higher profits as more U.S. Gulf Coast facilities are shut down due to ongoing extensive flooding from what's left of Hurricane Harvey. They had climbed 10 cents to $1.88 a gallon Wednesday.

But gasoline futures, which reflect wholesale prices and eventually trickle down to consumers, have started to spike again.

Fearing a gasoline supply squeeze, US gasoline prices RBc1 rose to a more than 2-year high of $1.935 per gallon early on Thursday. Now, the region makes up just 15% of the nation's oil production, according to RBC Capital Markets.

Gas stations will eventually have to respond by jacking up prices on consumers, at least temporarily.

"In terms of product price increases, it might get worse before it gets better", said Rob Smith, an IHS Markit energy analyst. In Georgia and North Carolina, fuel prices are up about 17 cents and average prices in SC have risen almost 20 cents per gallon from a week ago.

Patrick DeHaan, an analyst for GasBuddy, predicts that USA gasoline prices will top out around $2.50 or $2.55 a gallon, an increase of up to 20 cents since Harvey hit, with bigger spikes closer to the Gulf. European refiners are expected to ramp up capacity and exports to fill the gap, enticed by surging prices.

The eventual hit to US oil demand will ultimately be larger than the impact on supply, Goldman Sachs predicted. Those supplies serve as cushions during emergencies like Harvey, which knocked out large swaths of oil and gasoline production.

With Americans using about 9.7 million barrels per day of gasoline, the threat of a fuel supply crunch has grown as the storm and flooding in Harvey's aftermath brought a huge chunk of US oil production and refining capacity to a halt. On Tuesday, ExxonMobil began winding down some operations at its Beaumont, TX refinery as the storm headed east towards eastern Texas and Louisiana.

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.

According to industry estimates, at least 4.4 million barrels per day (bpd) of refining capacity was offline, or nearly a quarter of total USA capacity.

In other words, Harvey has disrupted about one-fifth of the country's total refining capability.

The so-called shale revolution has led to a surge in oil production in the USA, increasing the nation's exports of crude oil and gasoline to Mexico and other places in Latin America, and diesel to Europe. Valero also announced the shutdown of its Port Arthur refinery on Wednesday afternoon.

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