Gasoline Surges as Storm Harvey Traps Gasoline in the South



(Bloomberg) -- Gasoline advanced, extending its longest rally since 2013, as traders assess the capacity of key Gulf Coast refineries and pipelines to quickly return to service following Harvey.

Motor-fuel prices jumped as much as 13 percent in New York, climbing for an eighth straight session. Harvey, now moving inland as a tropical depression, has shuttered about 23 percent of U.S. refining capacity since its first landfall as a Category 4 hurricane on Friday. With flooding inundating the area, refineries in the Port Arthur, Beaumont and Houston areas remain off line, unable to provide fuel quickly enough to the 5,500-mile Colonial Pipeline.

Still, some plants near Corpus Christi -- where Harvey first hit -- are now working to restart, and the Strategic Petroleum Reserve on Thursday released half-a-million barrels of crude to a Gulf Coast refinery. Colonial, a main conduit for fuel to the Northeast, has said it expects to restart from Houston late Sunday, and that its Lines 1 and 2 are operating from Lake Charles East.

“We might be seeing signs that this reduction in refinery demand might not be as long-lasting as initially thought,” said Gene McGillian, market research manager at Tradition Energy in Stamford, Connecticut.

Wednesday’s inventory report showing U.S. crude stockpiles dropped to the lowest level since January 2016, along with a rise in gasoline demand, “point to a fairly healthy picture still,” McGillian said in a telephone interview.

As gasoline lingered at a two-year high, U.S. oil prices had dropped as demand from refiners quickly fell. This sent the premium of the refined fuel over crude, known as the  crack spread, higher in New York. The storm also triggered a flurry of trans-Atlantic gasoline trading and disrupted exports of liquefied petroleum gas, causing prices to rise in Asia.

“Harvey is driving cracks to the sky,” said Bjarne Schieldrop, chief commodities analyst at SEB AB in Oslo. “Crude-oil prices have declined while oil-product prices have increased.”

Gasoline for  September delivery, which expires Thursday, advanced 20.88 cents to $2.0935 a gallon at 10:13 a.m. on the New York Mercantile Exchange, the highest in more than two years. The more-active October contract rose 3.9 percent to $17016 a gallon.

West Texas Intermediate crude for October delivery climbed $1.26 to $47.22 a barrel on the New York Mercantile Exchange. Brent for October settlement, which expires Thursday, also rose 94 cents to $51.80 a barrel on the London-based ICE Futures Europe exchange. The global benchmark crude traded at a premium of $4.61 to WTI.

Now that Harvey has moved east, Valero Energy Corp., Citgo Petroleum Corp. and Flint Hills Resources LLC are preparing to restart refineries at Corpus Christi, close to where the storm first hit on Friday, according to regulatory filings and people familiar with the matter.

Plants in the Port Arthur, Beaumont and Houston, Texas areas remain shut, including the nation’s largest oil refinery operated by Motiva Enterprises LLC. The area surrounding Lake Charles, Louisiana is also under threat.

The U.S. government, meanwhile, has authorized the release of 200,000 barrels of sweet crude and 300,000 barrels of sour crude to Phillips 66 Lake Charles, Louisiana refinery. The last time the Energy Department authorized an emergency exchange of oil from the reserve was in 2012 during Hurricane Isaac, according to a person familiar with the authorization.

Oil-market news:

OPEC output falls 300,000 barrels a day in August to 32.6 million a day, according to JBC Energy. Traders have booked 20 tankers to load European fuels to the U.S. since Harvey made landfall on Aug. 26, according to charter lists compiled by Bloomberg. The rate of bookings is about double the average for August.

With assistance from Ben Sharples and Grant Smith. To contact the reporter on this story: Jessica Summers in New York at jsummers24@bloomberg.net. To contact the editors responsible for this story: James Herron at jherron9@bloomberg.net; David Marino at dmarino4@bloomberg.net Reg Gale.



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