Harvey knocks out more refineries, shifting global oil flows

Harvey knocks out more refineries, shifting global oil flows

The U.S. government is releasing half-a-million barrels of crude oil from the Strategic Petroleum Reserve to a Gulf Coast refinery as the region's refining industry works to recover from the devastation of Harvey. "Three to four weeks if there has been substantial damage". They had climbed 10 cents to $1.88 a gallon Wednesday.

Backwardation, when the front-month contract is more expensive than subsequent months, makes it uneconomical to store crude, resulting in the drawdown of inventories. The closure of so many US refineries has resulted in a slump in demand for the most important feedstock for the petroleum industry.

The move to a backwardated curve in mid-August was generally viewed by market participants as proof that crude oil was re-balancing, and that the efforts of the Organization of the Petroleum Exporting Countries (OPEC) and its allies to restrict their output were finally paying off.

Hurricane Harvey made landfall in Texas on the evening of August 25.

Brent crude futures LCOc1 were down 7 cents at US$51.93 a barrel. Jefferies bank said it was lowering its fourth-quarter Brent oil price estimates to $55 a barrel from $60 and its 2018 forecast to $57 from $64.

Prices also rallied in the oil products markets, with US gasoline futures hitting a two-year high above $2 a gallon, buoyed by fears of a fuel shortage just days ahead of the Labor Day weekend that typically brings a surge in driving.

The U.S. Department of the Interior's Bureau of Safety and Environmental Enforcement said that about 13.5 percent of oil production in the Gulf of Mexico was shut in on Thursday due to the storm. USA gasoline futures RBc1 surged 4 percent to settle at their highest in more than two years. However, the assessment does not include the impact of storm Harvey.

However, the data was collected before Hurricane Harvey hit the Gulf Coast.

U.S. West Texas Intermediate (WTI) crude futures CLc1 were trading at $45.84 per barrel at 0024 GMT, down 12 cents, or 0.3 percent, from their last close. The discount for U.S. WTI versus Brent reached $5.92 a barrel on Tuesday, its widest in more than two years. Refinery shutdowns and fuel shortage worries have also boosted retail fuel prices, particularly in the USA and Southwest. "It has to come from Asia even".

That includes the biggest USA refinery, Motiva's Port Arthur facility, which can handle more than 600,000 barrels a day.

This crude will now either have to be put in storage, or find other buyers.

Historic flooding caused by Harvey knocked one-fifth of the nation's refining capacity offline, according to S&P Global Platts.

There is little doubt that Harvey has complicated the efforts by OPEC and its allies to force global inventories lower, but if they respond by tactically allocating different grades of crude among customers, it could still work to their benefit.

Francisco Blanch and his team note that WTI timespreads have "returned to a steep contango" due to the refinery shutdowns caused by the storm.

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