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Refiners Boost Output, But Irma Could Dent Demand

Refiners Boost Output, But Irma Could Dent Demand

Refinery

Texas continues to recover from Hurricane Harvey, and many of the disrupted refineries are ramping up production once again. But the ripple effects from the outages are still being felt, and some Midwestern refineries are benefitting from surging margins stemming from the havoc.

Bakken Midwest refining margins more than doubled between August 23 and September 1, according to S&P Global Platts, jumping from $9 per barrel to temporarily over $20 per barrel, although they have since fallen back a bit.

The margins are inflated because of gasoline shortages in certain parts of the country, the unfortunate consequence of the massive refinery outages along the Gulf Coast after Hurricane Harvey. Refining margins were also helped along by the initial downward pressure that WTI exhibited as crude oil backed up without any place to go.

That means that refineries outside of the Gulf Coast could temporarily enjoy super profits. September is typically a time of the year when refineries undergo some maintenance and retool to prepare for winter fuel blends, but few are likely to take their plants offline in this market. “Nearly every refinery outside Louisiana and Texas is operating near full capacity,” Thomas Pugh, commodities economist at Capital Economics, told the Wall Street Journal.

“Refineries outside the affected area may delay maintenance to benefit from high processing margins,” Commerzbank oil analyst Carsten Fritsch said in late August. “Hence, the negative impact on crude oil demand and oil product supply might be less severe than feared.”

Indeed, refineries unaffected by Hurricane Harvey have been called into action, but the ramp up has its own consequences. As Midwestern refineries scramble to produce at max capacity, the demand for crude is pushing up benchmark prices in the region. Bakken crude started trading at a large premium relative to WTI as supplies tightened. From S&P Global Platts:

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