As it bears down on the Gulf of Mexico, Hurricane Harvey has high potential to negatively affect five southern Texas coast refineries and condensate splitter as well as crude and gasoline inventory levels in the region and beyond. The National Weather Service’s (NWS) National Hurricane Center (NHC) expects Harvey to approach the southern Texas coast on Friday. Additionally, the Government of Mexico has issued a tropical storm watch for the area south of the mouth of the Rio Grande to Boca de Catan.
“A hurricane like this typically causes an increase in fuel purchases in the market and a slowdown in retail demand,” said Jeanette Casselano, AAA spokesperson. “Spikes in pump prices due to the effects of hurricanes tend to be brief but dramatic. This impact is starting in Texas, where the average price for unleaded gas has already jumped up two cents since Tuesday to $2.15/gallon.”
A hurricane merely needs to threaten an area with refining capacity to result in precautionary shutdowns. Corpus Christi, which is home to a total of five refineries and splitters, is currently under a NWS hurricane warning. The facilities, which account for 4.2 percent of total U.S. oil refining capacity, include Valero, Flint Hills, CITGO, Magellan and Buckeye. Magellan was the first refinery to suspend operations followed by Valero. Flint Hills and CITGO. However, all five facilities are likely to be shuttered as a precaution because of the incoming storm.
In addition to Corpus Christi, Harvey has the potential to affect the Houston refinery market. The Houston, Texas City and Baytown region is home to 11 refineries that in total represent 14 percent of processing capacity in the U.S. A forecast of heavy rainfall leading to potential flooding and power outages is expected.
Harvey’s largest impact is likely to be significant reduction of crude imports into the Gulf Coast, affecting refineries’ crude production rates. Imports to Mexico could also be impacted, and there could be an unexpected rise in gasoline exports from other regions in the U.S to meet any challenges faced in the area under watch in Mexico. Moreover, the Florida market could take a hit as tanker ships may not be able to travel across the Gulf of Mexico.
Hurricanes have the potential to destroy demand, but they typically have a limited impact on supply. It may seem counterintuitive, but this observation takes into account that the mere threat of a hurricane typically tightens gasoline supply and can cause precautionary refinery shutdowns, which ultimately halt supply production for a short time period. However, post-hurricane, refineries return to full operation status as quickly as possible and imports are an option to return supply to pre-hurricane levels.