Gasoline rose to a two-year high as Tropical Storm Harvey hit the U.S. Gulf coast again after already knocking out a fifth of the nation’s refining capacity.
Motiva Enterprises LLC’s Port Arthur refinery, the country’s biggest, was said to be shutting because of severe flooding. The disruption helped send motor fuel as much as 3.3 percent higher in New York, while the resulting reduction in demand from plants hit by the storm kept crude near a five-week low. After drenching Texas, Harvey regained strength over the waters of the Gulf of Mexico and crashed ashore again Wednesday in southwest Louisiana, according to the National Hurricane Center.
Harvey, the strongest storm to hit the U.S. since 2004, is throwing the energy market into disarray. About 18 percent of national refining capacity has been halted, meaning less fuel is being produced than normal, according to the Energy Information Administration. The storm is also affecting the distribution of gasoline via pipeline, hindering crude exports and could eventually force oil fields to shut if the disruption endures for weeks.
“The market focus seems to be on the quantity of refinery capacity shut-ins and potential to hit oil demand,” said Giovanni Staunovo, an analyst at UBS Group AG in Zurich. “Harvey’s disruptions mean greater variability in the weekly U.S. oil inventory, production and demand data in the next weeks, which will likely add to higher volatility.”
Gasoline for September delivery, which expires Thursday, climbed as much as 5.89 cents to $1.8422 a gallon on the New York Mercantile Exchange, the highest in more than two years. The more-active October contract rose 2.3 cents to $1.6252 at 10:40 a.m. in London.
Motiva’s Port Arthur refinery has a capacity to process 605,000 barrels of oil a day, according to data compiled by Bloomberg. Valero Energy Corp. is also shutting its plant in the same area due to flooding, according to a person familiar with the matter.
Flooding is “now the greatest threat” to U.S. Gulf Coast energy infrastructure, Goldman Sachs Group Inc. analysts including Damien Courvalin said in an emailed report on Wednesday. Production disruptions have have fallen below 1 million barrels a day, while about 3.9 million barrels a day of refinery capacity is offline, meaning the storm is “net bearish” for the crude market, the bank said.
West Texas Intermediate for October delivery dropped 26 cents to $46.17 a barrel on the New York Mercantile Exchange after losing 13 cents to $46.44 Tuesday, the lowest close since July 24. With near-term demand depressed, the discount on front-month versus second-month contracts has surged to the widest since March.
Brent for October settlement, which expires Thursday, slid 39 cents to $51.61 on the London-based ICE Futures Europe exchange. The global benchmark traded at a premium of $5.44 to WTI. That spread may widen further if Harvey’s impact is prolonged, according to Goldman.