Gasoline hit a two-year high on Thursday 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, began a controlled shutdown because of severe flooding. The disruption sent motor fuel as much as 6.6 percent higher in New York, while the resulting reduction in demand from plants hit by the storm kept crude near a five-week low.
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.
“Gas prices at the pump will be a bit higher over the next few weeks,” says Resolute Wealth Editor Andrew Packer. “However, the impact will be temporary—we’ve seen this come and go before. The oil market isn’t taking off on the news; it’s strictly the lack of refining capacity right now driving gas prices higher.”
Gasoline for September delivery, which expires Thursday, climbed as much as 11.76 cents to $1.9009 a gallon on the New York Mercantile Exchange, the highest in more than two years. The more-active October contract rose 5.7 cents to $1.6587 at 1:40 p.m. in London.
Motiva’s Port Arthur, Texas refinery has a capacity to process 605,000 barrels of oil a day, according to data compiled by Bloomberg. When it can restart will depend on the recession of flood waters, the company said. Total SA’s refinery in the same area had a power loss while Valero Energy Corp.’s nearby facility was also said to be shutting.
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. Oil production disruptions 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 45 cents to $45.99 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.
“Oil prices are still struggling to head higher and will likely trade in a range for a few more months before a new trend emerges,” says Packer. “This price action goes to show that the oil market is still well-supplied thanks to America’s energy renaissance and OPEC’s loose quotas.”
(Newsmax wires services contributed to this report).
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