Hurricane Harvey disrupts U.S. Gulf Coast refineries, infrastructure, and supply chainsWith its landfall near Corpus Christi, Texas as a Category 4 storm two weeks ago on August 25, 2017 and subsequent path along the Gulf Coast, Hurricane Harvey caused substantial disruptions to crude oil and petroleum product supply chains and prices because of the high concentration of petroleum infrastructure in the Gulf Coast, Petroleum Administration for Defense District (PADD) 3. Just over half of all U.S. refinery capacity is located in PADD 3; Texas alone represented 31% of all U.S. refinery capacity as of January 2017. These refineries supply petroleum products to local markets, domestic markets on the East Coast (PADD 1) and in the Midwest (PADD 2), and international markets. As of March 2017, PADD 3 accounted for 49% of total U.S. working crude oil storage capacity and over 40% of working storage capacity for both motor gasoline and diesel fuel. Furthermore, PADD 3 represented 62% of total U.S. crude oil production in 2016, with an additional 18% coming from the Federal Offshore Gulf of Mexico.
Hurricane Harvey’s most significant effect on petroleum markets was to curtail refinery operations in Texas. Refinery operations are largely dependent on a supply of crude oil and feedstocks, electricity, workforce availability and safe working conditions, and outlets for production. As a result of Hurricane Harvey, many refineries in the region either reduced runs or shut down in its aftermath. For the week ending September 1, 2017, gross inputs to refineries in PADD 3 fell 3.2 million barrels per day (b/d) (-34%) from the previous week and were down 2.8 million b/d (-31%) from the same time last year. Four-week average PADD 3 gross refinery inputs fell to just above that measure’s five-year average of 8.5 million b/d (Figure 1). Outages and reduced runs resulted in PADD 3 refinery utilization falling from 96% to 63%, while other areas of the country remained virtually unchanged.
In addition to refineries, many crude oil and petroleum product pipelines reduced operations or shut down. The most prominent of these was the Colonial Pipeline system, a 2.5 million b/d petroleum product pipeline consisting of approximately 5,500 miles of pipeline that consistently operates at or near full capacity. Colonial connects 29 refineries and 267 distribution terminals, carrying gasoline, diesel, and jet fuel from Houston, Texas to New York Harbor. Decreased supplies of petroleum products available for the pipeline in Houston and Port Arthur, Texas, forced Colonial Pipeline to curtail operations and ship intermittently for a brief period of time before continuous operations at reduced rates were restored on September 6.
Disruption to Colonial Pipeline supplies reduced PADD 1 total motor gasoline inventories by 2.2 million barrels to 60.5 million barrels for the week ending September 1. Of this drawdown, 2.1 million barrels occurred in the Lower Atlantic (PADD 1C) states. This draw is less than a previous outage of the Colonial Pipeline in September 2016, when PADD 1C inventories fell nearly 6 million barrels.
Another logistical complication was created when the ports of Corpus Christi and Houston-Galveston were closed to ship traffic as a result of the storm. Large volumes of crude oil and refined products are both imported and exported through these ports.
In PADD 3, the net result of all these events led to Gulf Coast crude oil inventories to build by 1.7 million barrels for the week ending September 1, 2017. With refinery operations on the Gulf Coast disrupted, crude oil inventories in Cushing, Oklahoma also increased by 800,000 barrels.
The net effect on PADD 3 motor gasoline inventories because of impaired refinery runs and transportation options was a draw of 60,000 barrels to 82.4 million barrels for the week ending September 1, 2017, but inventories remain 9.2 million barrels (13%) higher than the five-year average.
Both crude oil and gasoline prices were influenced by the effects of Hurricane Harvey. Because of lower refinery runs and limited reductions in crude oil production, West Texas Intermediate (WTI) crude oil futures prices on the New York Mercantile Exchange (NYMEX) decreased from $48 per barrel (b) on August 25 when Hurricane Harvey made landfall, to $46/b on August 30. WTI crude oil futures prices have since increased, reaching $49/b on September 6.
By contrast, gasoline futures as well as wholesale and retail prices for gasoline increased because of the impacts on refineries and pipeline infrastructure. On the Gulf Coast, the wholesale price of gasoline increased from $1.66 per gallon (gal) on August 25, 2017 to $2.05/gal on August 31. The benchmark Reformulated Blendstock for Oxygenate Blending (RBOB) gasoline NYMEX futures price increased from $1.67/gal to $2.14/gal over the same period (Figure 2).
As a result of the changes in wholesale and futures prices, retail prices for gasoline also increased. The U.S. average regular retail gasoline price increased $0.28/gal to $2.68/gal between August 28 and September 4, 2017. The PADD 3 and Houston, Texas prices both increased $0.35/gal to $2.51 per gallon and $2.43/gal, respectively. The statewide Texas average regular retail gasoline price increased $0.40/gal to $2.56/gal (Figure 3).
Unlike previous significant Gulf Coast hurricanes, such as Katrina (2005), Gustav (2008), and Ike (2008), Hurricane Harvey had a more westward path, with the strongest effects of the storm mostly missing the largest concentration of offshore oil and gas production facilities. The Bureau of Safety and Environment Enforcement estimates that approximately 2.0% of Gulf of Mexico platforms were evacuated as of September 4, representing shut-in oil production of 121,484 b/d. According to the Texas Railroad Commission and other public sources, EIA estimates the highest on-shore crude oil production outages of approximately 500,000 b/d occurred around August 25 and 26.
The outcomes from Hurricane Irma are likely to be very different. While Hurricane Harvey impacted a major source of U.S. transportation fuels supply, demand in unaffected areas remained intact. Irma, which is projected to impact Florida and potentially the Eastern Seaboard, will likely disrupt demand centers.
Because of the displacement, evacuations, and other safety measures initiated as a result of the Hurricane Harvey, some respondents to EIA’s surveys may not have been able to submit data within the reporting window. EIA has and will continue to work diligently with respondents to ensure robust and accurate statistics.
U.S. average regular gasoline and diesel retail prices increase
The U.S. average regular gasoline retail price increased 28 cents from the previous week to $2.68 per gallon on September 4, up 46 cents from the same time last year. The East Coast price rose nearly 39 cents to $2.72 per gallon, the Gulf Coast price rose 35 cents to $2.51 per gallon, the Midwest price rose 23 cents to $2.54 per gallon, the Rocky Mountain price rose 14 cents to $2.61 per gallon, and the West Coast price rose over 11 cents to $3.02 per gallon.
The U.S. average diesel fuel price increased 15 cents to $2.76 per gallon on September 4, 35 cents higher than a year ago. The Gulf Coast price rose 19 cents to $2.62 per gallon, the East Coast price rose over 16 cents to $2.79 per gallon, the Midwest price rose 14 cents to $2.71 per gallon, the West Coast price rose 13 cents to $3.04 per gallon, and the Rocky Mountain price rose 8 cents to $2.80 per gallon.
Propane inventories gain
U.S. propane stocks increased by 6.3 million barrels last week to 79.9 million barrels as of September 1, 2017, 19.2 million barrels (19.4%) lower than a year ago. Gulf Coast, Midwest, East Coast, and Rocky Mountain/West Coast inventories increased by 4.5 million barrels, 1.4 million barrels, 0.3 million barrels, and 0.2 million barrels, respectively. Propylene non-fuel-use inventories represented 4.3% of total propane inventories.
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Headline crude prices for the week beginning 10 June 2019 – Brent: US$62/b; WTI: US$53/b
Headlines of the week
Midstream & Downstream
A month ago, crude oil prices were riding a wave, comfortably trading in the mid-US$70/b range and trending towards the US$80 mark as the oil world fretted about the expiration of US waivers on Iranian crude exports. Talk among OPEC members ahead of the crucial June 25 meeting of OPEC and its OPEC+ allies in Vienna turned to winding down its own supply deal.
That narrative has now changed. With Russian Finance Minister Anton Siluanov suggesting that there was a risk that oil prices could fall as low as US$30/b and the Saudi Arabia-Russia alliance preparing for a US$40/b oil scenario, it looks more and more likely that the production deal will be extended to the end of 2019. This was already discussed in a pre-conference meeting in April where Saudi Arabia appeared to have swayed a recalcitrant Russia into provisionally extending the deal, even if Russia itself wasn’t in adherence.
That the suggestion that oil prices were heading for a drastic drop was coming from Russia is an eye-opener. The major oil producer has been dragging its feet over meeting its commitments on the current supply deal; it was seen as capitalising on Saudi Arabia and its close allies’ pullback over February and March. That Russia eventually reached adherence in May was not through intention but accident – contamination of crude at the major Druzhba pipeline which caused a high ripple effect across European refineries surrounding the Baltic. Russia also is shielded from low crude prices due its diversified economy – the Russian budget uses US$40/b oil prices as a baseline, while Saudi Arabia needs a far higher US$85/b to balance its books. It is quite evident why Saudi Arabia has already seemingly whipped OPEC into extending the production deal beyond June. Russia has been far more reserved – perhaps worried about US crude encroaching on its market share – but Energy Minister Alexander Novak and the government is now seemingly onboard.
Part of this has to do with the macroeconomic environment. With the US extending its trade fracas with China and opening up several new fronts (with Mexico, India and Turkey, even if the Mexican tariff standoff blew over), the global economy is jittery. A recession or at least, a slowdown seems likely. And when the world economy slows down, the demand for oil slows down too. With the US pumping as much oil as it can, a return to wanton production risks oil prices crashing once again as they have done twice in the last decade. All the bluster Russia can muster fades if demand collapses – which is a zero sum game that benefits no one.
Also on the menu in Vienna is the thorny issue of Iran. Besieged by American sanctions and at odds with fellow OPEC members, Iran is crucial to any decision that will be made at the bi-annual meeting. Iranian Oil Minister Bijan Zanganeh, has stated that Iran has no intention of departing the group despite ‘being treated like an enemy (by some members)’. No names were mentioned, but the targets were evident – Iran’s bitter rival Saudi Arabia, and its sidekicks the UAE and Kuwait. Saudi King Salman bin Abulaziz has recently accused Iran of being the ‘greatest threat’ to global oil supplies after suspected Iranian-backed attacks in infrastructure in the Persian Gulf. With such tensions in the air, the Iranian issue is one that cannot be avoided in Vienna and could scupper any potential deal if politics trumps economics within the group. In the meantime, global crude prices continue to fall; OPEC and OPEC+ have to capability to change this trend, but the question is: will it happen on June 25?
Expectations at the 176th OPEC Conference
Global liquid fuels
Electricity, coal, renewables, and emissions