The Gulf Coast of Texas has been on high alert since Friday, as Hurricane Harvey made landfall and brought unprecedented levels of rainfall that is expected to continue through the middle of this week. Harvey made landfall just east of Corpus Christi, TX as a category 4 hurricane – slightly stronger than originally anticipated – before being downgraded to a tropic storm as it moved inland on Saturday. Despite being downgraded, Harvey is still causing significant damage as the slow-moving system continues to produce torrential rainfall that has produced over 20 inches of rain in many parts of the Texas coast, with potential for up to 50 inches in isolated areas by later this week. Major flooding has already been reported in the Houston area, with more rainfall expected in the coming days as Harvey’s course is forecasted to move through Houston and the Louisiana coast.
On the energy side, price volatility was experienced in gasoline to close last week – with the Gulf Coast spot price increasing over 20¢/gallon in the two days leading up to the weekend – but was much more subdued for diesel – with price premiums in the region of only 1-2¢/gallon. Following the initial impact, early week trading has started to show national pricing impacts from Harvey. While crude oil prices have shown early declines, both gasoline and diesel spot prices have increased. At the time of publication, the front month of NYMEX heating oil (which is used for the benchmark for ULSD pricing) was up just over 1.6¢/gallon, with the Gulf Coast spot price moving an additional 3.3¢/gallon. These spot market price movements will translate to the wholesale diesel market in the coming days, as diesel moves through the supply chain. At the fueling station level, the wholesale pricing impact to diesel has not yet been significant. The graph above tracks the price differential over time for Texas and Louisiana compared to the national average since Tuesday, August 22rd. As you can see in the chart above, the price premium is currently only around 1.5¢/gallon in Texas.
The lasting impacts of the storm will be determined in the coming days as the full extent of rainfall to the Houston area is realized. The Houston area plays a pivotal role in the US energy market, as it is a major hub for oil & refined product marine movements, houses a large portion of Gulf Coast refining capacity, and is a key location for pipeline infrastructure (specifically, the Magellan system which serves the mid-continent and the Colonial system which is the main supply line for the Southeastern US). A visual of US oil refinery locations is below, displaying the concentration of facilities in the Houston area. Over the weekend, refinery production took a hit as eight total refineries shut down operations – four in the Corpus Christi area and four around Houston – and many other refineries reduced their run rates. The estimated impact currently sits just over 2 million barrels per day (which is 25 percent and 15 percent of Gulf Coast and national refining capacity, respectively) and could grow if flooding in Houston worsens. Additionally, offshore oil production in the Gulf Coast has been reduced by roughly 20 percent and major oil terminals along the Gulf Coast have suspended or severely limited their operations, halting the movement of products by sea.
The Breakthrough Advisor team will continue to follow the impacts of Harvey and what it means to your supply chain. For more information on this event, or on the fuel market in general, please contact Daniel Cullen, Vice President of Advisory Services, at Daniel.Cullen@breakthroughfuel.com.