The Texas Gulf Coast is still on high alert, as Tropical Storm Harvey made its second landfall on Wednesday morning in Southwest Louisiana. Harvey is expected to move inland, bringing more rainfall through Friday until it ultimately loses strength. Massive flooding has left many parts of Houston – the fourth largest city in the United States – uninhabitable, with relief shelters filling to the brim. Parts of Houston have registered over 50 inches of rainfall, setting a record for the highest amount from any storm in the continental US.
The storyline for energy prices remains much the same as earlier in the week, as substantial price volatility for gasoline contrasts with much more subdued diesel price movements. As of Wednesday, Gulf Coast regional gasoline spot prices moved well over 30¢/gallon higher than the rest of the nation since the prior week, while Gulf Coast diesel prices have only moved 5¢/gallon relative to other regions at the spot level. In terms of movements at the pump, Texas wholesale prices have only shown a 2¢/gallon premium to national prices (as displayed in the chart above).
One interesting trend that has emerged is the divergence in price movements between crude oil and refined products. As the flood risk of Harvey has caused oil refineries to reduce run rates or shut down entirely, a situation has arisen where the demand for oil is reduced by the inability to process crude as effectively. At the same time, however, the supply of refined product outputs from refineries are substantially reduced. This diversion is shown in the chart above, as the price movements for WTI crude oil (converted to US¢/gallon) have shown a downward trajectory compared to the rising national diesel wholesale prices. This disconnect shows how Hurricane Harvey – and its impact on supply chains of refined products – has created a national impact on fuel prices.
Impacts to oil refineries in the Gulf Coast – both short-term closures and longer-term potential outages from flooding – stand to create the largest impact to diesel and other refined products. As Harvey has made second landfall, more refinery closures have been announced in the last 24 hours. Notably among these closures is Motiva’s facility in Port Arthur, which is the nation’s largest refinery at 600,000 barrels per day of production. Presently, there are at least 12 refineries offline, reducing product output by roughly 4 million barrels per day (which is 45% of Gulf Coast and 21% of national refining capacity). One bit of good news is that refineries in the Corpus Christi area, where Harvey first made landfall last Friday, have announced plans to restart operations within the week.
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.