Hurricane Harvey on Friday slammed the epicenter of Texas' refining industry, which processes about a third of America's oil. Companies including Exxon Mobil and Valero Energy have shut down their facilities in the area and evacuated workers. Goldman Sachs estimates that the hurricane has taken 3 million barrels a day — or about 17% — of refining capacity offline, and that's likely to increase the overall level of crude-oil inventories over the next couple of months. "The slow moving nature of the storm will likely lead to these shut-downs continuing in coming days and may generate persistent damage as well," Damien Courvalin, the head of energy research at Goldman, said in a note sent early Monday morning. The storm has since continued to crawl across Texas's southeastern coast. Courvalin wrote that more refinery shutdowns were to be expected, "with 850 kb/d of capacity in Houston not yet reported offline."
U.S. refining capacity is now estimated at only 30%. Additional refineries are closing. The Motiva refinery has limited production to 40%. In addition, the Colonial Pipeline has reported disruptions that will impact the delivery of product to the southeast. Expect gasoline prices to rise and possibly increased prices on other petroleum products. As a result of the refining disruptions, crude oil producers will likely curb production. If they do not, we will likely see further reductions in the price of crude oil as stores pile up because there is no where for it to go.
As we support the residents of Eastern Texas who are persevering through the aftermath of Hurricane Harvey and continued flooding, many are asking what the storm means for that region’s most notable products: crude oil and gasoline. The effect on energy commodities does not compare to the devastation to the lives of millions, but oil and gasoline are integral to modern lives.
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