Gasoline hits US$2/gallon as Harvey wreaks havoc on refiners, crude stable

[SINGAPORE] Gasoline prices hit US$2 a gallon for the first time since 2015 on Thursday as flooding from storm Harvey knocked out almost a quarter of US refineries, while crude prices stabilised following a slump the previous day.

Harvey has battered the US Gulf coast since last Friday, ripping through Texas and Louisiana at the heart of the US petroleum industry. At least 4.4 million barrels per day (bpd) of refining capacity was offline, or almost a quarter of total US capacity, based on company reports and Reuters estimates.

Amid fears of a supply squeeze, US gasoline prices on Thursday jumped to US$2 per gallon for the first time since July 2015.

"The flooding from Hurricane Harvey shut the largest refinery in the US, pushing gasoline prices to a two-year high. In contrast, oil prices retreated," ANZ bank said.

Goldman Sachs said it could take several months before all production could be brought back online.

"While no two natural disasters are similar, the precedent of Rita-Katrina would suggests that 10 per cent of the... currently offline capacity could remain unavailable for several months," the bank said.

Crude prices stabilised after falling sharply the previous day as the closure of so many US refineries has resulted in a slump in demand for the most important feedstock for the petroleum industry.

US West Texas Intermediate (WTI) crude futures were trading at US$45.96 per barrel at 0414 GMT, flat from the last day's settlement, when prices fell by 0.8 per cent intraday. International Brent crude was at US$50.88 a barrel, also virtually flat from its last close, though the contract fell by over 2 per cent during the previous session.

Analysts said that the heavy WTI discount with Brent was a result of shut in US crude supplies due to pipeline and refinery closures.

Meteorologists said that Harvey could be the worst storm in US history in terms of financial cost.

"The economy's impact, by the time its total destruction is completed, will approach US$160 billion," said Joel N Myers, president and chairman of meteorological firm AccuWeather.

Other estimates have put the economic losses from Harvey at under US$100 billion.

And although Harvey keeps getting weaker, meteorologists say more floods are expected.

The National Hurricane Center (NHC) said in its latest update that flooding and heavy rain continued in eastern Texas and western Louisiana.

AccuWeather also said that "the worst flooding from Harvey is yet to come as rivers and bayous continue to rise in Texas with additional levees at risk for breaches and failures."

Beyond Harvey, US commercial crude oil stocks fell by 5.39 million barrels last week, to 457.77 million barrels, according to data released Wednesday by the US Energy Information Administration. That's 14.5 per cent down from record levels reached last March, and it is below 2016 levels.

This came on the back of record US gasoline demand of 9.846 million bpd last week, and as US refining utilisation rates rose to 96.6 per cent, the highest per cent age since Aug 2015.

However, the data was collected before Hurricane Harvey hit the Gulf Coast.

REUTERS