Published: Fri, September 01, 2017
Business | By Max Garcia

Harvey-related flooding in Houston could raise gas prices in Metro Vancouver

Harvey-related flooding in Houston could raise gas prices in Metro Vancouver

The U.S. Department of the Interior's Bureau of Safety and Environmental Enforcement said that roughly 13.5 per cent of oil production in the Gulf of Mexico was also shut in on Thursday. September gasoline futures, which expire Thursday, were already sharply higher, but added to its rise-above $2 a gallon-marking its highest level since July 2015, according to FactSet data, now up 12% at $2.110 a gallon.

Tropical Storm Harvey landed in Texas as a Category 4 hurricane late Friday, and since then more than 4 million barrels of USA refining capacity has been taken offline, and substantial levels of onshore and offshore production has been cut as well.

It's also likely that the spread between various crude grades will be affected, as the US mainly exports light crude but imports heavier grades.

Refineries with output of 4.2 million barrels per day (bpd) were offline on Tuesday, representing almost 23 percent of US production, according to Reuters estimates and company reports.

More plants closed Sunday, including two of the country's biggest - Shell's Deer Park and ExxonMobil's Baytown, with about a million barrels a day of capacity between them. But the shutdowns following massive floods along Texas's coast has altered the situation dramatically.

"This is a really old fashioned panic in the product market", said Donald Morton, senior vice president of Herbert J. Sims & Co., who runs an energy trading desk.

The storm is set to keep dumping torrential rain on the state for days, potentially delaying refinery restarts. This time, hotbeds of shale in places like North Dakota, far from the reach of the storm, should limit the damage at the pump.

Even assuming it takes no more than a few weeks, Harvey's impact may be somewhat longer lasting. Companies that primarily convert crude into gasoline are temporarily in luck-their input is now extremely cheap and their output could cost up to 25 cents more. Total SA's refinery in the same area had a power loss while Valero Energy Corp.'s nearby facility was also said to be shutting. "It can have a huge ripple effect that we're now starting to see".

At the retail level, the average price per gallon for regular unleaded gasoline stood at $2.482 late Thursday afternoon, according to GasBuddy.

The Georgia-based company said in a statement that it expects to shut off the line Thursday.

Many analysts have urged the government to add refined product inventories in other parts of the country, like the northeast, which depend heavily on gasoline and diesel fuel from the Gulf region.

Though U.S. crude prices are up today, the contracts have fallen nearly 1.9% over the past five days and remain on track to end the month of August well into the red.

The Gulf of Mexico alone accounts for 20 percent of USA production, and the BSEE said about 19 percent of the region's output remained shut down, slightly less than on Sunday.

While Harvey may have a short-term impact on global crude and product markets, the question is how quickly USA production and exports return to normal.

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