Hurricane Irma Could Destroy Oil Demand
About half of the shuttered refining capacity along the Gulf Coast could be back up and running by Thursday, assuaging concerns about the possibility of acute gasoline shortages in much of the U.S.
The disruptions of more than 4 million barrels per day of refining capacity have been cut in half, with major refineries restarting operations in Corpus Christi and Houston. ExxonMobil is ramping up operations at its Baytown facility, the second largest in the country. Valero Energy brought two refineries in Corpus Christi and Texas City back online, with another large one in Port Arthur scheduled to resume operations soon.
The massive Motiva refinery – the largest in the country with 600,000 bpd of capacity – is still offline, but is getting closer to resuming operations. The large volume of restarts led to a spike in crude oil prices on Tuesday, with WTI up more than 3 percent. Gasoline futures fell back as the Colonial Pipeline restarted shipments.
Goldman Sachs predicts that as of Thursday, half of the shuttered refining capacity will have resumed.
But what about the rest? An estimated 1.4 mb/d could remain offline through mid-September at least, the investment bank predicts. Goldman says the lingering effects will be “modestly bearish,” projecting a 40-million-barrel increase in crude oil inventories. But the quick comeback of some larger refineries led Goldman to lower its projected demand impact from -750,000 bpd in the first month after the storm to just -600,000 bpd. Related: Oil Markets Rebound After Hurricane Harvey
However, the effects could actually become slightly bullish over time as the recovery efforts pick up, and intriguingly, there is “potential for some sustained US onshore production curtailments.” Eagle Ford shale drillers were forced to shut in some shale output as both the takeaway capacity (i.e., pipelines) and Gulf Coast refineries went offline, backing up crude at the wellhead.
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