Crude Oil Drops To Lowest Since July 21

Gladys Abbott
August 31, 2017

Soaring oil production in North Dakota and West Texas has made the USA less reliant on oil rigs in the Gulf, which are vulnerable to hurricanes.

Phil Flynn, senior market analyst for the PRICE Futures Group in Chicago, said in response to emailed questions that prices are down because about 16 percent of total US refining capacity is offline and crude oil levels are backing up in the storage hub at Cushing, Okla.

Despite the drop in production, oil prices are shrugging off the effects of the storm.

The size of the storm is one thing, but the gas industry was already maxing its output before Harvey made landfall in Texas last Friday, DeHaan explained. And restarts are risky periods, as fires and explosions can occur.

It also helps that few major US refiners have reported extensive damage from Harvey so far.

The SPR was established in the 1970s to prevent supply shocks in the wake of an embargo imposed by several members of the Organization of the Petroleum Exporting Countries (OPEC). "I would say that to a large extent, the worst is being priced in" for energy markets.

Most of the refinery shutdowns over the weekend were preventive measures and some refineries are reportedly expected to restart as early as this week-but the continued rainfall and the possibility of flooding could bring about permanent damage to some facilities. "Return to service is contingent upon recession of flood waters in the area".

"We just simply don't know yet the damage all this rain will have on Houston's energy infrastructure", said Andrew Lipow, president of energy consultancy Lipow Oil Associates LLC.

The storm also revived a long-running debate about the Strategic Petroleum Reserve, which holds 679 million barrels of crude oil in four locations in Texas and Louisiana.

Houston, a major USA city and home to significant oil companies, has been devastated by flooding in the wake of the storm's first impact.

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The refinery's owner, Motiva Enterprises, said the refinery was operating at 40 per cent capacity on Tuesday evening.

USA crude inventories fell by 5.78 million barrels last week, the API industry group reported on Tuesday, suggesting a gradual tightening of the US oil market. If the crisis in Texas increased demand even as the supply dipped, it could be "bearish" for local oil producers.

However, Stickel said that Alaska gets most of its gas from West Coast refineries.

Valero Energy Corp shut the large crude distillation unit and the gasoline-producing fluidic catalytic cracking unit at its 335,000-bpd Port Arthur, Texas, refinery.

But gasoline futures, which reflect wholesale prices and eventually trickle down to consumers, have started to spike again. Not every plant in the region was hit.

"Although weather conditions continue to deteriorate, Motiva's Port Arthur Refinery remains stable", Motiva said in a statement.

Coastal refineries in Texas account for one-quarter of the US crude oil refining capacity.

Kloza predicted that refinery shutdowns will lift per-gallon gas prices by 15 to 25 cents nationally, up from his earlier estimate of up to 20 cents.

The Colonial Pipeline, the biggest fuel pipeline in the US, said Tuesday that it was operating at reduced capacity due to less fuel coming in from the Houston area and storm-related damage at some of its loading and pumping stations. Traders have been keeping a close eye on whether there will be an outage at the pipeline.

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