Hurricane horror: Global fuel prices jump on Harvey's impact

Hurricane could impact debt ceiling deadline, says US Treasury Secretary

Tropical storm Harvey's impact on the energy industry spread worldwide as flooded US refiners and closed fuel pipelines threatened to squeeze national supply, roiling global fuel markets and rerouting millions of barrels of fuel to the Americas to avert shortages.

The storm, which lashed Louisiana with rain on Thursday, has pummeled the US Gulf Coast, immersing Houston, Texas, and the surrounding area in several feet of water and forcing the closure of about a quarter of US refining capacity.

Benchmark US gasoline prices and margins surged anew on Thursday. The jump came after the Colonial Pipeline, the biggest US fuel system, said it would shut its main lines to the Northeast by Thursday amid outages at pumping points and lack of supply from refiners.

That artery can carry 3 million barrels of gasoline and other products daily.

At least two East Coast refineries have run out of gasoline for immediate delivery as they scrambled to fill barges for markets normally supplied by the Gulf Coast, two refinery sources said.

 Global oil prices rose 1 per cent on Thursday, clawing back some of the losses made a day earlier, but US crude is on track for the steepest monthly losses in more than a year on demand concerns after floods knocked out a quarter of US refining capacity. International benchmark Brent crude was up 58 cents, or 1.1 percent, at $51.44 a barrel. US West Texas Intermediate (WTI) crude futures were set to close the month down 7 per cent, their steepest monthly loss since July 2016. They were trading 1.4 per cent up at $46.58 a barrel at 1352 GMT.

Later on Thursday, US Treasury Secretary Steven Mnuchin said the impact of Harvey could bring forward the deadline by which the nation's debt ceiling needs to be raised and that he is open to the borrowing cap being dealt with as part of a wider bill.

"This is going to be the worst thing the US has seen in decades from an energy standpoint," said an East Coast market source, who declined to be named as he was not authorised to speak to the press.

On Thursday, the US Energy Department said it would release 500,000 barrels of crude oil from the Strategic Petroleum Reserve to supply the refineries that are still running in an effort to stem fuel shortages.

The first emergency release from the reserve since 2012 will be delivered to the Phillips 66 refinery in Lake Charles, Louisiana, according to a department statement. US gasoline futures topped $2 per gallon for the first time since 2015, up more than 20 per cent since just before the storm began, while US crude oil prices were on track for their steepest monthly losses in more than a year. 

Explosions at a chemical plant near Houston posed a fresh worry for Texas. The smoke erupted when chemicals stored at an Arkema plant burst into flames after the refrigerator cooling the truck trailer they were stored in failed.

Average US retail fuel prices have surged by more than a dime per gallon from a week ago, the AAA said early on Thursday.

The Gulf makes up nearly half of total refining capacity in the United States, the world's largest net exporter of refined petroleum products, and the storm is set to impact global flows.

About 4.4 million barrels of US refining capacity have been shut by Harvey, including the nation's largest refiner, Motiva Port Arthur, which can process more than 600,000 barrels a day. The total shut-in is about 24 per cent of US refining capacity, almost equal to Japan's daily consumption.

The closures rattled global fuel markets, and European and Asian traders diverted millions of barrels of gasoline and diesel to the Americas to help fill that gap. But the supplies from those distant markets may not arrive fast enough to avert a crunch.

"Sourcing additional barrels from Europe is a potential solution, but an increased level of uncertainty is introduced surrounding the timeliness of delivery, given the logistics of travel time and securing tankers," said Michael Tran, director of global energy strategy at RBC Capital Markets.

The Asian refining margin on Thursday hit $10.41 a barrel, the highest since January 2016 . Gasoline prices in the region were $16.34 a barrel, also the highest since January 2016. In Europe, benchmark gasoline margins jumped to a two-year high of nearly $21 per barrel.

The US disruptions have hit wholesalers. The premium for Chicago-area gasoline above benchmark futures is at its highest since June 2016, while the Gulf Coast price is at its widest above futures since August 2012.

Suppliers in Chicago were trying to secure supplies after the Explorer Pipeline, which typically carries about 350,000 barrels a day (bpd) to the region, shut down.

"It's not a significant problem at the present time, but it could turn into one," said William Fleischli, executive vice president of the Illinois Petroleum Marketers Association, which represents 400 fuel distributors. Fleischli said much depended on how long the shutdowns last.

Average retail gasoline prices have risen to $2.449 per gallon nationwide, up 4.5 cents a gallon from a day earlier and 10.1 cents from a week ago, AAA data showed.

In Georgia and North Carolina, fuel prices are up about 17 cents and average prices in South Carolina have risen nearly 20 cents per gallon from a week ago.

Though flood waters have yet to recede, energy analysts said they anticipated potential long-term effects from the historic storm. Goldman Sachs analysts wrote Wednesday they expected about a tenth of what is now offline to stay shut for several months.