Tropical Storm Harvey has wreaked havoc on Texas’s oil-refining capacity by damaging infrastructure such as this tank in Seadrift.Rick Wilking/Reuters
Canadian motorists are seeing an increase in gasoline pump prices as a result of Tropical Storm Harvey's impact on the Texas refining sector, with the extent of the damage yet to be seen.
Gasoline for September delivery has risen 15 cents (U.S.) a gallon in futures market since the middle of last week – or roughly four cents (Canadian) a litre – as major Texas refineries remained closed until companies determine when they can be safely restarted. With weather forecasts predicting the deluge to continue around the Houston refining hub, it could be days or weeks before those facilities are back in operation.
"It's too early to tell" how high prices will go in Canada, said Dan McTeague, analyst with GasBuddy.com, which tracks North American gasoline markets. "We're in the early stages. They're going to rise incrementally – two or three cents – rather than moving all in one fell swoop."
Canadian pump prices rose two cents last week and are expected to climb another two cents in the next few days, he said.
American and Canadian markets are deeply integrated; U.S. refiners exported roughly 500,000 barrels a day of petroleum products into Canada in the first five months of 2017, and those imports will be either unavailable or more expensive as U.S. distributors look to make up for the lost Texas supply.
The battered state's Gulf Coast is home to some 5.6 million b/d of refining capacity, and Louisiana has 3.3 million barrels of capacity.
So far, roughly 2.2 million barrels has been shuttered around Corpus Christi and Houston, and there are fears that will increase as the tropical storm with its record rainfall shifts eastward along the coast towards Louisiana.
"At this stage, most of the refining outages are reported as preventive, with only a few comments on minor flooding," Goldman Sachs analysts said in a note Monday morning. "However, the slow-moving nature of the storm will likely lead to these shutdowns continuing in coming days and may generate persistent damage as well."
However, North American crude prices fell as oil producers were unable to make deliveries to those Gulf Coast refineries. West Texas intermediate was off 2.7 per cent Monday to $46.57 (U.S.) a barrel.
Canadian producers shipped some 412,000 b/d of crude to the U.S. Gulf Coast in May, the last month for which figures were available.
The loss of refinery production is being offset by a slump in gasoline demand as the United States' fourth largest city and its industrial operations remain essentially shut down, and by the high level of inventories in storage across the country.
Analysts noted inventories are higher now than they were in 2005, when Hurricane Katrina drove up prices by 40 cents a gallon, or roughly 10 cents a litre. There is enough gasoline in storage to cover 23.7 days of demand, compared with 20.5 days in the weeks before Katrina, according to the U.S. Energy Information Administration. East Coast storage tanks hold more than 63 million barrels of gasoline, a supply of more than two weeks, compared with about 52 million before Katrina.
As well, U.S. traders were seeking oil product cargoes from North Asia, several refining and shipping sources told Reuters on Monday.
The impact on prices will be greatest in the Gulf Coast region, but will spread across the continent as higher prices there pull supply away from other markets, industry consultant Jim Ritterbusch said on Monday.
"Until the loss of gasoline production in the Houston region is quantified later this week, the discovery process of figuring out where gasoline futures should be going to be difficult," he said. "So a lot of price volatility lies ahead."
Some U.S. crude production was also offline. Some 379,000 b/d of production in the Gulf of Mexico was idled on the weekend, the U.S. Bureau of Safety and Environmental Enforcement said.
There may also be around 300,000 b/d of onshore U.S. production shut in, trading sources said.
Hardest hit was the Eagle Ford region of south Texas, where flooding forced producers to shut down production and drilling. Calgary-based Encana Corp. said its Eagle Ford operations were curtailed on the weekend.
"Our staff are safe and our assets were not damaged," Encana spokesman Doug Hock said by e-mail. "We continue to restore production and are working with our midstream [pipeline] providers as we restore production."