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.
|Source: Company Statements|
|Valero||Corpus Christi, TX||293,000|
|Valero||Three Rivers, TX||89,000|
|Valero||Texas City, TX||225,000|
|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|
|Phillips 66||Sweeny, TX||247,000|
|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|
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.
|Source: BMI Refinery Database|
|CalcAsiaeu Refining||Lake Charles||75,000|
|Pelican Refining Company||Lake Charles||150,000|