Massive flooding caused by Tropical Storm Harvey along Texas' refinery-rich coast could have long-standing and far-reaching consequences for the state's oil and gas industry and the larger US economy.
U.S. refiners in the Midwest will be among the biggest winners after Hurricane Harvey dealt a blow to their competitors on the U.S. Gulf Coast.
Destruction in the Houston and Galveston areas has shuttered more than 16% of USA oil refining capacity.
Motiva's massive oil refinery in Port Arthur, the largest in the country, is now running at 40% capacity, according to the company.
More than one-fifth of USA refining capacity has been shuttered, according to S&P Global Platts. Beyond the shutdown of refineries at risk of a direct strike from high winds, there's the threat of flooding and potential power outages for gasoline supplies.
Nymex reformulated gasoline blendstock-the benchmark gasoline contract-rose 2.29% to $1.68 a gallon.
"Louisiana is open and being used as much as possible to discharge fuel and load exports", a trader at a refinery said.
Even so, it will take refiners in the Houston area a while to fully recover to normal production. That assumes they didn't suffer serious damage, which is still unknown.
Oil futures edged up and gas futures extended their gains on Thursday as the disruption from Hurricane Harvey complicated the flow of US crude exports.
Should these levels of outages remain in place, and using past hurricanes as proxies for the impact on oil demand, we roughly estimate that the impact of Harvey on the USA oil market would be to add 1.4 mb/d of crude while removing 615-785 kb/d of gasoline and 700 kb/d of distillate.
Because of the unique nature of the storm, which looks to be a landmark event in the history of US natural disasters, a majority of refining capacity between Corpus Christi and Houston are offline.
The result will be higher prices, but it should be just a one- or two-week problem, Joswick said.
Overall, this makes it more likely that prices will rise in the short term as suppliers of crude to the U.S. Gulf Coast seek new buyers, and buyers of U.S. crude seek new supplies.
"On the supply side, operations appear to be resuming, though refinery demand in the region may limit the pace of activities in the Eagle Ford, Permian, and other plays where pipeline and processing infrastructure are also impacted by the storm", she said.
Exxon, Shell and other companies have reported to Texas regulators that some of their storage tanks and other facilities near Houston were damaged by the torrential rains and flooding.
A major pipeline supplying the East Coast with gasoline remains shut down - partly because with refineries closed, there is nothing to ship, but also because of damage in at least three areas.
The Gulf makes up almost half of total refining capacity in the United States, the world's largest net exporter of refined petroleum products, and the storm is expected to affect global flows.