Hurricane Hangover: September Editor’s Message

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Hurricane IrmaHurricanes Harvey and Irma hit the people of Texas and Florida hard. The storms also wreaked havoc on the North American oil and gas sector, as a number of refineries and pipelines were shut down.
Gasoline prices in particular skyrocketed, as the Colonial Pipeline was shut down, shunting supply to the eastern seaboard.

According to industry analytics firm IHS Markit, an estimated 13 of the 20 affected refineries have returned to normal or near normal operating rates. Five of the other seven are actively in the process of restarting. Yet, the amount of capacity offline is still significant.

“Because of the amount of refining capacity that remains offline (and perhaps Irma-related market jitters), gasoline prices have been slow to decline,” IHS Markit reported. “It has now been nearly two weeks since the peak of Gulf Coast flooding and the NYMEX RBOB spot price remains about 20 percent above its pre-Harvey levels.”

IHS Markit predicted that gasoline prices may decline sharply as European product arrived. Without another hurricane threat to U.S. refining, the firm forecasted that the country is past peak in terms of U.S. gasoline prices.

Crude oil prices below $50/barrel normally equate to street prices of $2.25/gallon or less, IHS Markit reported. However, gasoline prices could remain higher than normal because of worries that at least 1 million bpd of Gulf Coast refining capacity could be offline until October.

IHS Markit further reported that Florida terminals were in the process of being resupplied, as cargoes from Europe that took alternate routes to the East Coast would arrive soon. Delayed Louisiana-sourced material was also on its way to Florida.

Major Gulf Coast ports have re-opened, according to the report, although IHS Markit noted that there may be some facilities under Coast Guard-mandated restrictions.

Partly as a result of the hurricanes’ impacts, the International Energy Agency (IEA) revised its estimate of global oil demand growth in 2017 upward in its most recent Oil Market Report (OMR). The new forecast also includes the impact of strong demand numbers in June from countries in the Organization for Economic Cooperation and Development (OECD). With the revisions, IEA’s estimate of global oil demand is now 97.7 million bpd for 2017 and 99.1 million bpd in 2018.

However, IHS Markit reports that U.S. crude oil markets need more time to return to normal. The prediction is based on a wide Brent-WTI price differential of about $3/barrel before the storm to more than $6/barrel afterward, a sign that U.S. crude oil supplies are increasing surplus relative to the international market.
That surplus has emerged as a still significant chunk of Gulf Coast refining capacity remains offline (although most facilities are recovering). At the same time, port and pipeline closures earlier this month caused a disruption in U.S. crude oil exports, which dipped to just 150,000 bpd the week ending Sept. 1 (down from an average about 900,000 bpd year-to-date).

Hurricane Irma appeared to have had negligible impact on U.S. crude oil production, IHS Markit reported. As Gulf of Mexico and onshore production returns to normal, the firm predicted that overall U.S. crude output would surpass its previous 2015 monthly average peak by the end of the year.

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