How Vulnerable Are Oil Markets To Extreme Weather?
Last week, Hurricane Harvey made landfall in the United States and for days disrupted the national energy industry.
Refineries were closed, pipelines shut down, tankers held out to sea. The price of fuel shot up as gas stations went dry across the country, while crude slumped with a third of the U.S. refinery capacity shut in.
A week later, a recovery is evident and most of the shuttered facilities in Corpus Christi and elsewhere are slowly coming back on line. But the impact of Harvey will likely be felt for weeks. Gas prices, according to EIA data, remain high in PADD 1 and PADD 3 (East Coast and Gulf Coast).
The massive Motiva refinery has resumed partial production, and Goldman Sachs estimates that half of affected capacity will be back-online. But that leaves 1.4 million bpd that could remain off-line through mid-September, depressing prices.
The actual damage to facilities, according to a report from the New Orleans-based Times Picayune, has been relatively minor. Operations are chiefly impeded by flood waters and the inability of staff to return to work. But there have been reports of chemical leaks and pollutant spillages, while clean-up and repair from Harvey to energy infrastructure could take months and cost billions.
The impact of Harvey has had some market watchers ponder the vulnerabilities of the U.S. energy infrastructure, the bulk of which is located in the Gulf region. And a second monster storm, Hurricane Irma, currently barreling towards Florida, has raised questions regarding the long-term security of the national oil and gas industry. Irma could have a major impact on demand as it slams into the U.S. East Coast, further depressing the price as consumption is curtailed.
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