Gasoline prices in the United States hit $2 a gallon for the first time since 2015 on Thursday as flooding from storm Harvey knocked out almost a quarter of U.S. refineries, while crude prices remained weak as demand dropped following the outages.
Harvey has battered the U.S. Gulf coast since last Friday, ripping through Texas, Louisiana and the heart of the U.S. petroleum industry. At least 4.4 million barrels per day (bpd) of refining capacity was offline, based on company reports and Reuters estimates.
Amid fears of a supply squeeze, U.S. gasoline prices on Thursday jumped to $2 per gallon for the first time since July 2015, and traders from Europe to Asia were scrambling to fix fuel cargoes to the United States.
Goldman Sachs said it could take several months before all production could be brought back online.
“While no two natural disasters are similar, the precedent of Rita-Katrina would suggests that 10 percent of the … currently offline capacity could remain unavailable for several months,” the bank said.
While gasoline spiked, crude markets remained weak after already falling sharply the previous day. The closure of so many U.S. refineries has resulted in a slump in demand for the most important feedstock for the petroleum industry.
U.S. West Texas Intermediate (WTI) crude futures were trading at $46 per barrel at 0708 GMT, slightly above last day’s settlement, when prices fell by 0.8 percent intraday.
International Brent crude was at $50.74 a barrel, down 12 cents from the previous day, when the contract fell by more than 2 percent.
“The temporary closure of refineries is a major dent to United States’ crude demand and is weighing on both Brent and WTI prices,” BMI Research said.
Analysts said that the heavy WTI discount with Brent was a result of shut in U.S. crude supplies due to pipeline and refinery closures.
Harvey could be the worst storm in U.S. history in terms of financial cost.
“The economy’s impact, by the time its total destruction is completed, will approach $160 billion,” said Joel N. Myers, president and chairman of meteorological firm AccuWeather.
Other estimates have put the economic losses from Harvey at under $100 billion.
Although Harvey keeps getting weaker, meteorologists say more floods are expected.
AccuWeather said “the worst flooding from Harvey is yet to come as rivers and bayous continue to rise in Texas with additional levees at risk for breaches and failures.”
Beyond Harvey, U.S. commercial crude oil stocks fell by 5.39 million barrels last week, to 457.77 million barrels, according to data released Wednesday by the U.S. Energy Information Administration.
That’s down 14.5 percent from record levels reached last March.
The big draw in crude came as U.S. gasoline demand hit a record 9.846 million bpd last week, and as U.S. refinery use rates rose to 96.6 percent, the highest since August 2015.
However, the data was collected before Hurricane Harvey hit the Gulf Coast. (Reuters)