Oil report for September 1, 2017
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 of, 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.
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.