Front-month (Sept) RBOB Gasoline futures traded as high as $1.90 this morning - the highest since July 2015 - as more refiners (including America's largest) shutdown output due to Harvey's impact.
As Bloomberg reports, America’s largest oil refinery is joining the spate of shut-downs in the face of Tropical Storm Harvey’s apocalyptic rains, potentially reducing U.S. fuel-making capacity to the lowest level since 2008.
Motiva Enterprises LLC’s Port Arthur facility, the largest in the U.S., is shutting because of severe flooding issues, according to a person with knowledge of the plant’s operations who didn’t want to be identified because the information isn’t public. Motiva, owned by Saudi Arabia’s national oil company, said in a statement that the plant was operating at about 40 percent of its 605,000-barrel-a-day capacity.
It joins more than a dozen other plants in Texas with combined capacity of more than 4 million barrels a day that have gone at least partially offline since Harvey approached the coast late last week.
That amount of offline capacity could reduce U.S. fuel production to the lowest since Hurricane Ike shut several refineries after striking the Texas coast in 2008.
The impact of these additional shutdowns is clear as RBOIB spikes over $1.90 - the highest since July 2015
While Gasoline futures have jumped to the highest in more than two years, the fuel’s premium to crude oil has risen to a 16-month high.
“These closures are already impacting markets with crude prices lower on a perceived drop in demand and gasoline prices spiking in response to lower supply,” Sandy Fielden, director of oil and products for Morningstar Commodities Research, said in an emailed note.
Even as plants recover, the restarts will be delayed by distribution issues and crude supply, compounded by port closures cutting off imports, Fielden said. The Port of Houston has no timeline for reopening, while Corpus Christi’s port is expected to resume normal operations by Sept. 4.