Relentless storm continues to challenge crude

August 29, 2017 08:31 AM
Daily Energy Market Analysis

Tropical Storm Harvey continues to add to misery and this storm just will not go away. It was not enough to hit as a category 4 hurricane, but massive flooding and the real possibility that this storm is ready to regenerate and possibly boomerang around for another shot at the Gulf Coast is a nightmare scenario that we pray does not happen. Even if the storm does not regenerate, record rainfall is going to see flood waters continue to rise and raise the very real possibility that Hurricane Harvey will be the most expensive storm in U.S. history.  

For the U.S. energy industry, the relentless nature of this storm provides challenges unlike anything they have seen before. Despite almost insurmountable logistical challenges, the U.S. energy industry was already making amazing steps to try to start bringing refineries back on line. Yet will their efforts be thwarted as Tropical Storm Harvey gets ready for another go around and will the storms force the shutdown of the country’s largest refinery and shut down even more production.  

As of yesterday, oil and gas producers actually brought some production back online in the Gulf of Mexico. For oil, only 18.94% of production is shut in and for gas 18.12%. The Bureau of Safety and Environmental Enforcement (BSEE) also reported that at 11:30 CDT yesterday personnel was evacuated from a total of 98 production platforms, 13.3% of the 737 manned platforms in the Gulf of Mexico. Personnel have been evacuated from five rigs (non-dynamically positioned (DP) rig), equivalent to 50% of the 10 rigs of this type currently operating in the Gulf. 

Also, refiners in Galveston are looking to restart but may have to delay it if Tropical Storm Harvey comes back around, according to Bloomberg. Valero Corpus Christi and Citgo Corpus Christi are said to be preparing for restart. As far as refineries that are shut right now we have: Shell Deer Park, Exxon Baytown, Flint Hills Corpus Christi, Valero Three Rivers, Phillips 66 Sweeny, Petrobras Pasadena, Valero Houston. Refiners running at reduced rates are Marathon Galveston Bay, Exxon Beaumont Lyondell Basell Houston. 

Magellan shut down its pipeline in Houston raising gas prices in the Midwest and now WKRN reports that the Colonial Pipeline says their system was affected in Houston by Tropical Storm Harvey and are interrupting service which should send prices higher in the East Coast. The company says they are responding to the impact of the storm in Houston and its surrounding areas, which includes Pasadena and Cedar Bayou Service that has been interrupted until Colonial says it can assess the damage and make any necessary repairs.

Of course, the supply side must be balanced with demand destruction fears. Vacationers going to the Gulf Coast may stay home dampening U.S. oil and jet fuel expectations. With the airport closed for the foreseeable future in the fourth largest city in the U.S., it will give you just a bit of an idea how bad demand might get hit. 

In the mean time dollar weakness and crazy North Korea shooting off a Baltic missile toward Japan is giving safe havens a boost.

About the Author

Phil Flynn is a senior energy analyst at The PRICE Futures Group and a Fox Business Network contributor. Phil is one of the world's leading market analysts, providing individual investors, professional traders, and institutions with up-to-the-minute investment and risk management insight into global petroleum, gasoline, and energy markets.