Unprecedented

The Gulf Coast and Houston are in our prayers as they face unprecedented challenges in the aftermath of Hurricane Harvey. Hurricane Harvey, the strongest Texas hurricane in 50 years, brought record rainfall and unprecedented flooding. It may take years for the area to recover and it is going to be a historic challenge for the US energy sector. The storm has shut about 15% of US refining, cutting fuel-making capacity output by an estimated 2.2-2.7 million barrels a day. The National Hurricane Center said that this event is unprecedented and all impacts are unknown and beyond anything experienced. That also means that the heart of the US energy industry will face challenges unlike anything they have seen and it could be months or years before we get back to normal. This comes as Hurricane Harvey could regain strength and the possibility of another storm in the Gulf of Mexico next week.

The Houston Shipping Chanel is still closed and so even if some refiners come back on line, they can’t move product. This drove RBOB gas futures to a 2 year high and diesel prices spiked as well. Gas shortage fears are driving retail prices and there are warnings about price gouging to retail stations by the oil companies. We know that the market is reacting to that but this is going to change as more news comes in.   

West Texas oil futures fell as the market expects that refineries will demand less oil as they take weeks, maybe longer, to come back on line. Brent crude on the other hand stayed stronger as the US will demand product from Europe as well as some shut down of Libyan oil production over the weekend. With more rain expected and the possibility that Hurricane Harvey could strengthen again the impact on the US energy sector will be unprecedented.

The impact on production and refining is big. The Wall Street Journal reports that Exxon Mobil Corp. closed its Baytown refinery, located on the Houston Ship Channel, when floodwaters paralyzed large portions of the area. The plant is the second-largest refinery in the country, processing as much as 560,000 barrels of oil a day and feeding fuel into pipelines and barges that move it across the southeastern U.S. and up the East Coast.