US gasoline futures surge after Storm Harvey hits Texas; WTI crude prices fall

 

 

 
 
By BimanMukherji
 
Reuters: Floodwaters on Interstate 225 after Hurricane Harvey inundated the Texas Gulf coast with rain causing mass flooding.

 

U.S. gasoline futures surged on Monday, after now-Tropical Storm Harvey knocked out almost 15% of the nation’s refinery capacity, with further disruptions likely to come.

September Nymex futures RBU7, +5.18%  climbed 7 cents, or 4.1%, to $1.734 per gallon, while the more active October contract RBV7, +4.17%  rose 5 cents, or 3.4%, to $1.594 a gallon.

Further supply disruptions are expected, including at Exxon Mobil Corp.’s XOM, +0.51%   Houston-area refinery. The U.S.’s second-biggest refinery processes as much as 560,000 barrels of oil a day, feeding fuel into pipelines and barges that move it across the southeastern U.S. and up the East Coast.

Harvey’s projected path includes an even bigger refinery in Port Arthur, Texas, which is owned by Saudi Arabian Oil Co., known as Saudi Aramco, which produces 600,000 barrels of fuel a day. Energy companies are still assessing the damage from Harvey, which was initially a hurricane but has now been downgraded to a tropical storm.

“It will probably be a couple of days before we get clarity on the duration of closures,” says Ric Spooner, chief markets strategist at CMC Markets, adding that prices are likely to remain volatile in the near term as investors are likely to focus on the storm damage

 
 

It can take weeks or even months to get new electrical equipment and other parts installed to repair damage from flooding. Harvey’s path cuts right through the heart of the U.S. oil infrastructure, with the Texas coast being home to nearly 30% of the country’s refining capacity.

On the New York Mercantile Exchange, light, sweet crude futures for delivery in October CLV7, -0.84%  fell 40 cents, or 0.9%, to $47.47 a barrel in the Globex electronic session. But October Brent crude on London’s ICE Futures exchange LCOV7, +0.44%  rose 12 cents, or 0.2% to $52.55 a barrel.

The dip in Nymex crude futures reflect concerns about demand in the region following the weather-related shutdowns of refineries, said Stuart Ive of OM Financial, though Brent prices were higher as overall global demand was solid.

But crude oil prices are likely to remain under pressure with the impact of the storm continuing for the remainder of the week, Barnabas Gan, an analyst at OCBC in Singapore, told The Wall Street Journal.

“It’s bearish for crude oil and bullish for gasoline,” said Gan. “The weather experts — if you trust them — say Hurricane Harvey will actually last days, which should mean gasoline will remain supported.”

Investors will also have their eyes on U.S. stockpiles data this week, which could potentially cushion some of the impact on reduced supplies caused by Harvey. U.S. refiners produced record amounts of fuel during the summer.

Analysts noted that Harvey also shut down several big offshore oil and gas platforms in the Gulf of Mexico. The platforms account for roughly 22% of offshore oil production capacity in the Gulf.

Crude oil prices could also get a lift amid speculation that members of the Organization of the Petroleum Exporting Countries could extend their production cap beyond March next year, according to Gnanasekar Thiagarajan, director of Commtrendz Risk Management.

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