Industry Trend Analysis - Harvey Causing Major Dent To Crude Demand - OCT 2017

BMI View: Hurricane Harvey is continuing to dent crude demand with a number of refineries vulnerable to shutting over the coming days.

At the time of writing Hurricane Harvey has been downgraded to a tropical storm and made landfall again in Louisiana. The largest impact to energy markets is severe flooding, which has resulted in the closure or part-closure of nearly 25% of the United States' refinery capacity.

Closed or Partially-Closed Refineries
Company Location Capacity (b/d)
Source: Company Statements
ExxonMobil Baytown, TX 560,000
ExxonMobil Beaumont, TX 362,000
Valero Corpus Christi, TX 293,000
Valero Three Rivers, TX 89,000
Valero Texas City, TX 225,000
Valero Houston, TX 263,776
Marathon Galverston Bay, TX 459,000
Marathon Texas City, TX 86,000
Citgo Corpus Christi, TX 157,000
Magellan Corpus Christi, TX 50,000
Buckeye Corpus Christi, TX 50,000
Flint Hills Corpus Christi, TX 230,000
Flint Hills Corpus Christi, TX 70,000
Shell Deer Park, TX 340,000
Petrobras Pasadena, TX 112,229
Phillips 66 Sweeny, TX 247,000
Lyondell Houston, TX 263,776
Motiva Port Arthur, TX 603,000

The temporary closure of refineries is a major dent to United States' crude demand and is weighing on both Brent and WTI prices. While crude prices are sagging, product prices are soaring. Gasoline prices in the US have diverged away from the underlying crude price, reaching a two-year high due to limited supply being churned out by the Gulf Coast refiners.

Gasoline Hitting Two Year Highs
Front Month WTI (USD/bbl) & Front Month RBOB (USd/gal)
Source: Bloomberg, BMI

Midstream bottlenecks are weighing heavily on WTI, with pipeline closures and refinery shutdowns resulting in supply backlogs. Front month WTI is currently trading at USD5.5/bbl discount to Brent, reflecting these supply issues.

Trapped WTI Widening Spread
Premium Of Front Month Brent Over WTI Crude, USD/bbl
Source:Bloomberg, BMI

As Harvey heads inland once again, we note a number of refineries in its current trajectory will be under threat. This could close up to another 824,000 barrels per day (b/d) of capacity, giving an additional lift to fuel prices, while further depressing crude.

Lake Charles Refineries Under Threat
Company Location Capacity (b/d)
Source: BMI Refinery Database
CalcAsiaeu Refining Lake Charles 75,000
Citgo Lake Charles 425,000
Pelican Refining Company Lake Charles 150,000
Total Port Arthur 174,000
Valero Port Arthur 375,000