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Oil report for September 1, 2017

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Hurricane Harvey is still far and away the major story of the week in the energy world, with an huge number of refineries still offline. Oil prices continue to sag, while gasoline prices soared this week.

Refinery outages persist. Some refineries in the Corpus Christi region are coming back online, but the larger ones in Houston and Port Arthur/Lake Charles are mostly offline. The Motiva facility in Port Arthur, the largest in the country, is still offline and could remain out of commission for two weeks, according to the latest reports. As ofFriday, an estimated 3 mb/d of refining capacity is still offline, a slight improvement from earlier this week.

Colonial Pipeline outage interrupts gasoline flows to east coast. The Colonial Pipeline carries more than 2 million barrels per day of refined products – diesel, jet fuel and gasoline – from Texas and Louisiana up through much of the U.S. Southeast and Mid-Atlantic. The pipeline was forced to shut down because of problems sourcing enough product. The outage has led to a spike in gasoline futures, pushing them up to their highest level in years. “Typical Colonial Pipeline volumes are equivalent to Europe’s gasoline exports, so these volumes will be difficult to replace and will require supplies from distant regions if the outage is prolonged,” Wood Mackenzie analyst Alan Gelder said in a note. As of now, the pipeline is slated to come back online in a few days as refineries along the Gulf Coast trickle back online. But it will likely operate at reduced rates through next week at least. “The major refined product pipelines out of Houston are mostly shut because there is no gasoline and diesel to pump,” said Andy Lipow, of Lipow Oil Associates.

TransCanada shuts down southern leg of Keystone pipeline. TransCanada (NYSE: TRP) announced the closure of the southern leg of its 600,000 bpd Keystone pipeline that runs from Cushing to refineries along the Texas Coast. The disruption could lead to a sharp increase in inventories at the Cushing storage facility. Discounts are deepening for Permian crude relative to WTI.

DOE taps SPR. The U.S. DOE authorized the release of 500,000 barrels of oil to helpPhillips 66 (NYSE: PSX) to bring its Lake Charles refinery back online. The release is the first in five years.

Gasoline prices to rise. “Gas prices are going to go up because of the flooding,” U.S. Sec. of Energy Rick Perry told reporters. He also warned that the state attorney general would be watching to make sure price gouging did not occur. Texas is seeing fuel shortages both in Houston and elsewhere in the state. Tom Kloza, global head of energy analysis at Oil Price Information Service, told CNBC that a worst-case scenario would be retail gasoline prices spiking by 40 to 60 cents per gallon, pushing averages up to $2.75 per gallon. Patrick DeHaan, senior petroleum analyst for GasBuddy, saidthe price increases and supply problems could last for a month or more.

Toxic releases in Texas. The storm has led to the spill or release of some 2 million pounds of hazardous chemicals, according to Business Insider, some of which are cancer causing agents such as carbon monoxide and benzene. Some companies had to intentionally burn and flare chemicals because they had no way of disposing them. The toxic threat was punctuated by the explosion at a chemical plant owned by French company Arkema (OTCMKTS: ARKAY).

U.S. offshore production still down. According to IHS Markit, Gulf of Mexico operators still have about 236,000 bpd offline, or about 13 percent of the total production from offshore producers in the Gulf. Fortunately, however, there are no reported damages to platforms.

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Hurricane Harvey continues to shake up energy markets, with gasoline prices being heavily impacted through pipeline and refinery disruptions.

Eagle Ford output cut in half, return delayed. The Eagle Ford shale in South Texas has suffered outages on the order of 500,000 bpd, although much of that could come back online when the port of Corpus Christi reopens in the coming days. But other analysts are more pessimistic. Raymond James & Associates estimates that more than half of the rigs in the Eagle Ford suspended operations, and it could take time for them to return to rain-soaked fields. “Given that much of oil and gas activity occurs in areas only accessible via dirt roads, the heavy rainfall usually makes the movement of trucks and supplies much more difficult,” Marshall Adkins of Raymond James wrote in a note. “The trucking and rail of sand, chemicals, and personnel to the well site will all take more time given the likely nasty condition of many Eagle Ford access roads.”

OPEC frustrated by low prices. Reuters reports that OPEC officials are bewildered by the lack of movement in crude prices even after the U.S. Gulf Coast was inundated by the worst rain event in the country’s history. “It seems no event will move the oil price up much,” an OPEC official told Reuters. “OPEC must be raging, they’re not getting any of this (gain),” Olivier Jakob of Petromatrix said.

Investment banks slash oil price forecasts again, Brent at $54 in 2018. An Augustsurvey of investment banks by the Wall Street Journal reveals ongoing pessimism regarding the trajectory of oil prices. The average prediction from the 14 investment banks puts Brent crude at $54 per barrel in 2018, down $1 per barrel from the same survey a month earlier. It marked the fourth consecutive month that major analysts cut their price forecasts. The big reason is the expectation that the OPEC deal expires next year and the group ramps up production.

Tesla starts solar roof production. Tesla (NYSE: TSLA) announced the beginning of solar cell manufacturing at its Buffalo, NY factory, which will be used in its new solar roof arrays. The roof tiles will eventually be made at the same facility. Tesla hopes to ramp up to 2 GW of annual solar cell production over time, with an interim target of 1 GW by 2019.

U.S. government prepared to block Rosneft’s ability to take control of Citgo.Citgo, the U.S.-based subsidiary of Venezuela’s state-owned PDVSA, offered about half of the company as collateral to Rosneft last year in exchange for a $1.5 billion loan. With PDVSA looking dangerously close to a default, the U.S. government is concerned that Rosneft will take control of Citgo, which owns major refineries in the United States (some of which were disrupted during the Hurricane). According to theWall Street Journal, the U.S. government is prepared to block the hypothetical takeover of Citgo by Rosneft.


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