Oil prices dipped on Wednesday but gasoline spiked to its highest since mid-2015 as flooding in the wake of Hurricane Harvey knocked out nearly a quarter of USA refineries, crimping demand for crude but raising fears of fuel shortages.
About 4.4 million barrels of USA refining capacity have been shut by Harvey, including the country's largest refiner, Motiva Port Arthur, which can process more than 600,000 barrels a day.
"As of August 29, we estimate USA refining production offline was 4.1 million barrels per day (bpd); this represents 23 percent of total USA refining production", Goldman Sachs said in a note to clients. Refineries with a combined oil output of 4.1 million barrels per day were shut down on Tuesday, accounting for 23 percent of USA oil production, according to data from investment Goldman Sachs. That assumes they didn't suffer serious damage, which is still unknown.
The widespread disruption in the U.S. Gulf Coast has lifted the average price of a gallon of gasoline by 10 cents to $2.449 on Thursday, according to AAA.
"Although weather conditions continue to deteriorate, Motiva's Port Arthur Refinery remains stable", Motiva said in a statement.
Soaring oil production in North Dakota and West Texas has made the USA less reliant on oil rigs in the Gulf, which are vulnerable to hurricanes.
"While no two natural disasters are similar, the precedent of Rita-Katrina would suggest that 10 percent of the. now offline capacity could remain unavailable for several months", the investment bank said.
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"Sourcing additional barrels from Europe is a potential solution, but an increased level of uncertainty is introduced surrounding the timeliness of delivery given the logistics of travel time and securing tankers", said Michael Tran, director of global energy strategy at RBC Capital Markets. Moreover, Pemex's refineries have been down lately, putting refining capacity at many of its facilities its lowest rate since 1990. It was originally going to Corpus Christi, Texas. That means less appetite for gasoline for cars, diesel for trucks and jet fuel at airports.
The decision to tap the oil reserve follows the shutdown of the Colonial Pipeline, which normally carries a huge amount of gasoline between Houston and the East Coast.
Crude production was also affected, but to a lesser degree.
McMonigle predicted the Energy Department will take more steps because refinery recoveries are likely to be slow.
USA disruptions have hit wholesalers.
- SHIPPING: In a hopeful sign, port officials in Corpus Christi say that an initial check turned up some damage from Harvey's landfall over the weekend, but they hope to restart shipping on Monday. But an analyst pointed out that it would only provide about half an hour's worth of the nation's gasoline consumption. Other carriers, such as American Airlines, planned to wait until Thursday.
More than 1,600 USA flights had been canceled by afternoon, majority at the Houston airports, according to tracking service FlightAware.
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