The ripple effect of Texas’s deadly storm, highlighting the growing importance of the U.S. for the global oil industry is being felt by world energy markets, from butane in Asia to gasoline in Latin America and diesel in Europe.
The U.S. exported just 800,000 barrels a day of mostly refined products when Hurricane Katrina hit in 2005. In an increase driven by a boom in shale production, the end of a ban on crude exports and the expansion of several refineries, today it ships more than 6 million barrels a day of crude and fuels.
“The global implications of a stormy season in the U.S. Gulf of Mexico have mounted as the U.S. has emerged as a global energy hub,” said Ed Morse, head of commodities research at Citigroup Inc. in New York.
Shifting around crude and refined products by ship, an almost unprecedented opportunity for traders to make money is opening up by the effect of Tropical Storm Harvey on oil markets. While Asian countries are snapping up cargoes of liquefied petroleum gases — butane and propane mostly — to replace the loss of exports from Texas, they’re already amassing an armada of tankers to send European gasoline to the U.S. and Latin America.
The International Energy Agency released emergency petroleum reserves after Hurricanes Katrina and Rita hit the U.S. 12 years ago. Although the IEA “stands ready to act as required,” it said earlier this week, according to the IEA, there’s no need to release stocks as global inventories remain high this time around.
After Harvey made a second landfall between Texas and Louisiana on Wednesday, the U.S. oil system remains severely handicapped.
Noting a quarter of the country’s total and equivalent to the refining capacity of France and Germany combined, flooding and power failures have reduced U.S. fuel-making capacity by about 4.25 million barrels a day. The pipeline which takes gasoline from Texas and Louisiana to the U.S. East Coast, supplies to the major Colonial pipeline has been cut by the drop in output. Its operator planned to halt its gasoline link Thursday and shut its main diesel line late Wednesday.
Once refiners assess the damage to their flooded plants, Harvey’s full impact can only be known after that. The chance of long-lasting equipment problems was reduced, because ahead of the storm, most were able to carry out a controlled shutdown, unlike during Katrina and Rita.
Still, far reaching effects can be the result of a short-term supply squeeze. Imports from Texas and Louisiana is important for Latin America. while Argentina, Brazil, Chile, Colombia, Venezuela and several Central American countries buy significant quantities of U.S. fuels, Mexico buys 50 percent of its gasoline from the U.S.
Since Europe imports U.S. diesel, if the refinery shutdowns continue, the region will also feel a crunch. Now trading at a premium to longer-term contracts is European gasoil for near-term delivery.
“The amount of oil lost to Harvey by the rest of the world will quickly accumulate,” said Olivier Jakob, founder of energy consultants Petromatrix GmbH in Zug, Switzerland. “This will accelerate stock-draws in the rest of the world.”
(Adapted from Bloomberg)