Europe gasoline exports set to surge on Harvey outages

Andrew Cummings
September 1, 2017

Gasoline futures surged more than 13 per cent on Thursday, and crude oil settled nearly 3 per cent higher, as almost a quarter of USA refining capacity remained offline and traders scrambled to reroute millions of barrels of fuel.

Analysts said Harvey has had tragic effects on Texas and further heavy rain and floods could increase refining outages, tightening product and crude markets. Harvey was the strongest storm to hit the state in more than 50 years, forcing operators to shut refineries, pipelines and ports.

That's 12 cents higher than a week ago, before Harvey made landfall, and 4 cents higher than on Wednesday. That translates to a daily average of about 391.73 million gallons (or about 9.33 million barrels per day). They had been pressured by concerns USA refiners will stay shut and demand less oil, potentially leading to higher US stockpiles and rekindling fears of a global supply glut. That refinery has not been affected by the storm, which has hammered the Gulf Coast for several days. Its ports import and export millions of barrels per day (bpd) of crude and fuel. The total shut-in is about 24 percent of USA refining capacity - nearly equal to Japan's daily consumption.

Prices will only see a more lasting impact if trade disruptions are more severe, analysts said.

"The relative weakness in WTI is understandable given that pipeline closures are backing USA crude up in the Midland though the selloff in Brent appears to be more of a knee-jerk reaction to refineries shutting", Sam Alderson, an analyst of Energy Aspects, an independent research consultancy specializing in global energy markets, told Xinhua Wednesday. Prices in the region have risen as supply falls due to refinery closures.

The problem for Mexico is compounded by the fact that production from state-owned Pemex has been in decline for years, making the country much more dependent on its northern neighbor. As of Tuesday, it changed its destination to New Orleans.

USA disruptions have hit wholesalers. Asian refiners are also keen to buy US cargoes and concerned about delays to those they have already bought, shipping sources said. Reuters put the figure at 40 tankers, carrying 1.5 million tonnes of gasoline, or about triple the normal rate. "The longer the stoppage in the Gulf, the greater global competition for obtaining the barrels and higher prices in the European market". That has pushed USA crude prices below prices for crude elsewhere, making it cheap for global refiners if they can still get a cargo out.

Consider that US oil companies had stockpiled 463 million barrels of crude as of last week, according to the government. Valero Energy Corp. and Citgo Petroleum Corp. were said to be preparing to restart their refineries in Corpus Christi after Harvey moved through over the weekend.

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