Texas crude oil production up 3 percent before Harvey slowdown

Andrew Cummings
August 31, 2017

Marathon Petroleum Corp was shutting two refineries in the Houston area on Tuesday because of flooding, according to sources familiar with plant operations.

With Gulf Coast refineries and ports shut after Harvey, it was unclear whether there would be strong demand for an immediate release of crude from the SPR.

"The others in a worst-case scenario could take weeks and months to fix".

"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.

More refinery closures were expected, as parts of Texas have received more than four feet of rain.

During early morning runs for gasoline on August 29, North Texans discovered the new reality of what they will have to pay at the pump - thanks to Hurricane Harvey.

Wednesday's inventory report showing US crude stockpiles dropped to the lowest level since January 2016, along with a rise in gasoline demand, "point to a fairly healthy picture still", McGillian said in a telephone interview.

Colonial Pipeline, the key artery sending gasoline up the East Coast, was still shipping barrels there but had faced flooding at origination points in Texas. Overall, this makes it more likely that prices will rise in the short term as suppliers of crude to the US Gulf Coast seek new buyers, and buyers of US crude seek new supplies.

Prices would be higher if not for record refinery runs in 2017, said Matt Smith, director of commodity research at Clipperdata.

The refinery closures helped push US gasoline futures to a two-year high of $1.7799 per gallon on Monday, although they had receded to $1.7030 by 1158 GMT on Tuesday. The Eagle Ford shale, meanwhile, could show small production declines because of the impact from Tropical Storm Harvey. Brent crude futures were down 6 cents, at $51.94 a barrel.

In cash trading, the spread between Gulf Coast gasoline prices and benchmark futures rallied further, a day after hitting a five-year high in anticipation of constrained supply.

Some analysts believe the hit from Harvey, coupled with holiday travel demand could increase prices anywhere from 5 to 25 cents per gallon.

In the USA, gasoline prices continued to rise, with Nymex reformulated gasoline blendstock-the benchmark gasoline contract-up almost 2.05% Thursday, at $1.67. The average price in Texas rose 2 cents to US$2.19 per gallon.

Harvey's projected path also includes an even bigger refinery in Port Arthur, Texas, which is owned by Saudi Arabian Oil Co. and produces 600,000 barrels of fuel a day.

But damage delayed a restart of the gasoline unit at Marathon's 459,000-bpd Galveston Bay refinery, plant sources said. That's the second largest weekly increase across the nation.

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