Marathon Petroleum Corp. signage is displayed outside the refinery ahead of Hurricane Harvey in Texas City, Texas, U.S. (Photographer: F. Carter Smith/Bloomberg)

Gasoline Jumps, Oil Slips as Harvey Slams Texas Refinery Center

(Bloomberg) -- Gasoline futures jumped to a four-month high and oil dropped as flooding from Tropical Storm Harvey in Texas led to the shutdown of major refineries.

Motor fuel prices rose 2.7 percent and oil in New York slipped 2.7 percent. Harvey, the strongest storm to hit the U.S. since 2004, has flooded cities and caused plants to shut, leading to about 2.26 million barrels a day of crude and condensate capacity in Texas offline. Several key pipelines were also closed, potentially stranding crude in Texas and interrupting gasoline supplies to other parts of the country.

“There’s a big drop-off suddenly in crude oil demand,” John Kilduff, a partner at Again Capital LLC, a New York-based hedge fund, said by telephone. “We have a supply disruption event in gasoline production. Gasoline demand in the balance of the country is still elevated, so we could see a real impact on gasoline inventories if these refineries are unable to get restaffed quickly.”

Gasoline Jumps, Oil Slips as Harvey Slams Texas Refinery Center

Harvey’s widespread flooding has interrupted refining operations, leading plants such as Royal Dutch Shell Plc’s Deer Park, Texas, refinery and Exxon Mobil Corp.’s Baytown, Texas, complex to shut. Meanwhile, Magellan Midstream Partners LP suspended its inbound and outbound refined products and crude pipeline transportation services in the Houston area and Colonial Pipeline Co.’s Cedar Bayou, Texas, operations are shut. Several energy traders closed their offices Monday and Houston’s utility said restoring power would take at least until Sept. 2.

Gasoline for September delivery climbed 4.57 cents to settle at $1.7123 a gallon on the New York Mercantile Exchange after touching $1.7799 a gallon, the highest intraday price for a front-month contract since July 2015. The gasoline crack spread, a rough measure of the profit from refining crude into gasoline, rose to $19.42 a barrel.

See also: Hedge Funds Lose Faith in Oil Before Harvey Hits Demand Hub

West Texas Intermediate crude for October delivery slipped $1.30 to settle at $46.57 a barrel, the lowest level in five weeks. Brent for October settlement dropped 52 cents to end the session at $51.89 a barrel on the London-based ICE Futures Europe exchange. The global benchmark traded at a premium of $5.32 to WTI, the widest in two years.

Gasoline Jumps, Oil Slips as Harvey Slams Texas Refinery Center

An estimated 300,000 to 500,000 barrels a day of oil output from the Eagle Ford shale formation in Texas has been shut, according to the Texas Railroad Commission. At the same time, about 19 percent, or 331,400 barrels a day, of Gulf of Mexico oil production is offline, compared with 22 percent Sunday, according to government data.

Other infrastructure outages include Explorer Pipeline Co.’s suspension of its product shipments from origin points in Pasadena, Texas, and a service halt by Magellan on the Longhorn and BridgeTex crude pipelines.

The U.S. could see 30 percent of refining capacity shut on Harvey and if the storm moves up the Texas coast toward Louisiana, then additional shutdowns could occur in Port Arthur and Beaumont in Texas as well as in Lake Charles, Louisiana, Tudor Pickering Holt & Co. LLC analysts said.

Gasoline Jumps, Oil Slips as Harvey Slams Texas Refinery Center

The storm has drifted back into the Gulf of Mexico and is poised to regain strength before crashing into the Texas-Louisiana border, according to the National Hurricane Center. While two refineries in the Corpus Christi, Texas, area are said to be preparing for restart, other plants on the Gulf Coast are still closed with the potential shutdown of more in the Port Arthur area, including the nation’s largest refinery operated by Motiva Enterprises LLC.

“Clearly, the storm is having much more of an impact on the refined product side than it is on the production side for oil and gas,” Tamar Essner, an energy analyst at Nasdaq Inc. in New York, said by telephone. There is uncertainty about what type of potential flood damage could have occurred at these refineries or how long they will be offline, she said.

Oil-market news:

  • Houston offices of energy traders Trafigura Group Pte Ltd., Mercuria Energy Group Ltd. and Gunvor Group Ltd. are closed Monday and staff are working from home or elsewhere following flooding caused by Tropical Storm Harvey, according to company spokesmen.
  • From a global oil supply-demand perspective, the storm is likely to lead to higher crude and product inventories over next couple of months “given the likely larger hit on U.S. demand than supply,” according to Goldman Sachs Group Inc.
  • Cushing crude stockpiles rose by 200,000 barrels last week, according to a forecast compiled by Bloomberg.
  • Two more oil fields in Libya are being closed after an armed group took over pipelines to both deposits, further disrupting the OPEC nation’s plan to boost crude production.