A storm-ravaged Gulf Coast faces a large and complex recovery that could take longer than energy investors expect
In case you missed the wall-to-wall coverage, Hurricane Harvey slammed into the Gulf Coast, the heart of America's oil and gas industry and one of the world's largest energy hubs, on 25 August. Torrential rain is expected to keep falling on Houston and surrounding areas throughout this week.The moves in RBOB have been dramatic (and a bit emotional - borderline bipolar - with the depression/fear emphasized):
The immediate concern is for the thousands affected by the flooding. But the fallout on energy markets will be great: supply, energy infrastructure and demand have all already been significantly affected by the storm.
Gasoline and other fuel prices quickly jumped more than 5% as the scale of the disaster became clear and refineries along the coast were shut down. WTI crude prices fell more than 2%, and the benchmark's discount to Brent spread to more than $5 a barrel for the first time since mid-2015, on reduced demand from Gulf Coast refiners.
Around 2.2m barrels a day of processing capacity was taken offline over the weekend, roughly 45% of Texas's Gulf Coast capacity and a fifth of the capacity in Padd 3, the broader Gulf Coast region. Most of the closures were focused around Corpus Christi, which suffered a direct hit from the hurricane. The city's five refineries and condensate splitters were all closed, including the Citgo, Valero and Flint Hills' major refineries, though none reported serious damage.
Most of the facilities are likely to try to reopen by the end of the week, which should mean a relatively short interruption. Still, due to widespread disruptions of personnel, power and infrastructure it will take many more days, if not weeks, for full capacity to be regained.
Bulging US crude and product inventories will help fill the gap, and could even accelerate a stock drawdown long sought by oil bulls and Opec ministers who have closely tracked the US' weekly inventory reports for signs of the market rebalancing.
But further refinery outages may lie in store. Some models predict Harvey will turn up the coast towards Louisiana, where another 3.7m b/d of crude processing capacity would sit in the storm's destructive path. Analysts at Tudor Pickering and Holt, the investment bank, have warned this could shutter 30% of the nation's refining capacity. Others say the tempest, which has been downgraded from a Category 4 hurricane to a tropical storm, would still pack enough punch to force facilities to shut down by the time it reached Louisiana.
Harvey is also disrupting oil output and the pipelines that ferry crude and products around the region. Nearly 20% of the Gulf of Mexico's production was shut in over the weekend—430,000 b/d—after a number of operators pulled personnel out of harm's way. However, no offshore platforms appeared to suffer serious damage and production had already started coming back by Monday afternoon, when the outage was down to 330,000 b/d, according to the Bureau of Safety and Environmental Enforcement.....MORE