Gasoline Surges as Traders Eye Harvey Impact on Energy Assets

  • Colonial’s key pipelines are operating from Lake Charles east
  • Refineries in locations such as Port Arthur, Beaumont shut

Gasoline in Best Run Since 2013

Gasoline climbed to the highest level in more than two years as traders assess how quickly key Gulf Coast refineries and pipelines are able to return to service following Harvey.

Motor-fuel prices jumped 13.5 percent in New York. Harvey has shuttered about 23 percent of U.S. refining capacity since its first landfall on the Texas coast as a Category 4 hurricane on Friday. While refineries in the Port Arthur, Beaumont and Houston areas remain off line, some plants in the Corpus Christi area -- where Harvey first hit -- are working to restart and the Strategic Petroleum Reserve on Thursday approved the release of 1 million barrels of crude to a Gulf Coast processor.

Colonial said its Lines 1 and 2 are operating east of Lake Charles and it will be able to bypass any shuttered terminals near Port Arthur, Texas, when it resumes shipments Sunday from the Houston area.

The focus is on how long refineries will take to get back online, Tariq Zahir, a New York-based commodity fund manager at Tyche Capital Advisors LLC, said in a telephone interview. “This is more of an unleaded gasoline story. The impact on the whole Texas area -- the story is still developing.”

Gasoline has lingered at a two-year high as Harvey affects refineries, terminals, ports and pipelines. The storm has also triggered a flurry of trans-Atlantic gasoline trading and disrupted exports of liquefied petroleum gas, causing price spikes in Asia.

Meanwhile, oil in New York has traded below $50 a barrel amid a dip in demand from refiners during the storm and as cuts by the Organization of Petroleum Exporting Countries continue to be threatened by output increases from other producers. OPEC shipments will drop by 80,000 barrels a day to September 16, according to tanker-tracker Oil Movements.

Gasoline for September delivery, which expired Thursday, advanced 25.52 cents to settle at $2.1399 a gallon on the New York Mercantile Exchange, the highest level in more than two years. The more-active October contract rose 8.7 percent to $1.7792 a gallon. The gasoline crack spread, a rough measure of the profit from refining crude into gasoline, jumped to the highest in two years.

West Texas Intermediate crude for October delivery climbed $1.27 to settle at $47.23 a barrel on the New York Mercantile Exchange. Brent for October settlement, which expired Thursday, also rose $1.52 to end the session at $52.38 a barrel on the London-based ICE Futures Europe exchange. The global benchmark crude traded at a premium of $5.15 to WTI.

Floodwaters envelop an Exxon Mobil Corp. gas station in Houston, Texas.

Photographer: Luke Sharrett/Bloomberg

Now that Harvey has moved east, Valero Energy Corp., Citgo Petroleum Corp. and Flint Hills Resources LLC are preparing to restart refineries at Corpus Christi, according to regulatory filings and people familiar with the matter.

Port Arthur, Lake Charles

Plants in the Port Arthur, Beaumont and Houston, Texas areas remain shut, including the nation’s largest oil refinery operated by Motiva Enterprises LLC, which has no timeline for its restart. The area surrounding Lake Charles, Louisiana, is also under threat, yet Citgo said its refinery in the area didn’t sustain damage.

The U.S. government, meanwhile, authorized the release of 400,000 barrels of sweet crude and 600,000 barrels of sour crude to Phillips 66’s Lake Charles refinery. The last time the Energy Department authorized an emergency exchange of oil from the reserve was in 2012 during Hurricane Isaac.

U.S. crude stockpiles fell for a ninth week to the lowest level since January 2016 last week, according to Energy Information Administration data Wednesday.

Wednesday’s inventory report “points to a fairly healthy picture still,” Gene McGillian, market research manager at Tradition Energy in Stamford, Connecticut.

Oil-market news:

  • U.S. Gulf crude production shut in about 236,115 barrels a day, or 13.5%, of total Gulf of Mexico output, according to the Bureau of Safety and Environmental Enforcement.
  • As much as 10 percent of U.S. fracking work could be delayed after Hurricane Harvey ripped through southeast Texas, home to one of the nation’s busiest oilfields, according to Raymond James & Associates.
  • Traders have booked 20 tankers to load European fuels to the U.S. since Harvey made landfall on Aug. 26, according to charter lists compiled by Bloomberg. The rate of bookings is about double the average for August.

— With assistance by Ben Sharples, and Grant Smith

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