- Gasoline climbed above $2/gallon on severe disruption of Gulf Coast refining
- Refineries unable to supply through main arteries to North Eastern parts of the US
- The gasoline price will be supported until flows are reinstated or imports pick up
- More than 3 million barrels/day of crude are left in tanks due to refinery outages
- WTI crude oil likely to find support ahead of $45.25/b
Houston flooded by Harvey, the major storm that has struck the
centre of the US energy industry. Photo: Shutterstock
By Ole Hansen
Gasoline breached $2/gallon earlier today as catastrophic flooding continues to disrupt Gulf Coast refining capacity. Currently more than 3 million barrels/day of crude oil are left in tanks due to refineries' inability to operate amid the havoc wreaked by the storm now dubbed Tropical Depression Harvey.
Source: Saxo Bank
As the flooding moved east during the past 24 hours, additional refineries, some of the biggest on the coast, have closed down. As a result, refineries are no longer able to supply and maintain pressure in the main gasoline and diesel arteries supplying the North Eastern parts of the US.
With RBOB gasoline futures priced on deliveries to the major East Coast trading centre for imports and exports at New York harbour, the price will continued to be supported until flows are reinstated or imports from Europe and elsewhere pick up.
The overhang of crude oil has started to spread to the global market. Brent crude, which has enjoyed improved fundamentals since July, has once again returned to contango at the front of the curve.
Libya’s production has dropped by more than 350,000 b/d this past week as three main fields remain disrupted, with rebels taking over pipelines and facilities thereby forcing the shutdown of three major oil fields. A rapid rise in Libyan production forced the correction back in June, but with more than a 3-million-barrel/day drop in demand from Gulf Coast refineries, this development has only so far manage to prevent a potentially even greater oil price fall.
Analysts from JBC Energy see Opec’s August production down 300,000 b/d due to Libya, while the 12 members bound by cuts have increased compliance to 96% from 86% in July.
The global energy market is facing one of its biggest challenges in years, with global flows of both oil and products being severely disrupted and with shippers having to redirect and find new destinations. WTI crude oil, however, is likely to find support ahead of $45.25/b, the 61.8% retracement of the June-to-July rally, not least due to the continued pull from gasoline, but also considering the reduced net imports to the Gulf coast.
Refinery at Corpus Christi, Texas. Here shown before the storm
shut a quarter of US refining capacity. Photo: Shutterstock
— Edited by John Acher
Ole Hansen is head of commodity strategy at Saxo Bank