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Gasoline spikes, crude slumps as Harvey wreaks havoc on U.S. refiners

01 September 2017

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 USA oil production and refining capacity to a halt.

About 4.4 million barrels of USA refining capacity have been shut by Harvey, including the nation's largest refiner, Motiva Port Arthur, which can process more than 600,000 barrels a day.

The loss of US refining capacity should be bearish for heavy crude grades, given numerous refineries now idled used imports of this type for feedstock.

Major pipelines carrying gasoline and diesel fuel to Midwest and East Coast markets have been either throttled back or shut due to reduced supply.

USA gasoline futures jumped 4 percent to settle at 1.7833, the highest in more than two years.

Almost a quarter of USA fuel output was knocked out since Harvey made landfall on Friday in Texas, where several large refiners are located.

More refinery closures were expected, as parts of Texas have received more than 4 feet (1.2 meters) of rain.

Suppliers in Chicago were trying to secure supplies after the Explorer Pipeline, which typically carries about 350,000 barrels a day (bpd) to the region, shut down.

But also of importance is the idling of both offshore and onshore oil production in the region, with more than 320,000 bpd of offshore output remaining idled as of Wednesday.

Colonial Pipeline, the key artery sending gasoline up the East Coast, was still shipping barrels there but had faced flooding at origination points in Texas.

"This release sends a message to the market that the US government is willing to address any kind of supply shortages".

"In terms of product price increases, it might get worse before it gets better", said Rob Smith, an IHS Markit energy analyst.

Just last week, refiners pushed output to their highest percentage of capacity since 2005 as gasoline demand hit an all-time weekly record of 9.85 million barrels, according to U.S. Energy Department data on Wednesday.

But gasoline futures skyrocketed 7% to a 25-month high, as traders realize that refineries will be shut for some time. Officials said the refinery, which hasn't been shutdown by the historic flooding, requested the release of emergency oil.

AAA Texas on Thursday reported the average price at the pump statewide was $2.26 per gallon.

"While some Texas refiners were beginning to restart operations Wednesday as Tropical Storm Harvey moved into Louisiana, others were bringing plants down, causing a further reduction in available refining capacity", energy information provider S&P Global Platts said.

Motiva Enterprises made a decision to close its 603,000bpd plant in Port Arthur, Texas, while Total halved the output of its refinery, which is in the same area.

"We're still pretty early in the process of figuring out the extent of any damage from the flooding", said Anthony Scott, managing director of analytics at BTU Analytics in Denver. The company said it discovered roof damage at the plant, which is the second-largest in the country.

Gasoline spikes, crude slumps as Harvey wreaks havoc on U.S. refiners