- Bob Riha, Jr./Reuters
Hurricane Harvey on Friday slammed the epicenter of Texas’ refining industry, which processes about a third of America’s oil.
Goldman Sachs estimates that the hurricane has taken 3 million barrels a day – or about 17% – of refining capacity offline, and that’s likely to increase the overall level of crude-oil inventories over the next couple of months.
“The slow moving nature of the storm will likely lead to these shut-downs continuing in coming days and may generate persistent damage as well,” Damien Courvalin, the head of energy research at Goldman, said in a note sent early Monday morning. The storm has since continued to crawl across Texas’s southeastern coast.
Courvalin wrote that more refinery shutdowns were to be expected, “with 850 kb/d of capacity in Houston not yet reported offline.”
- National Weather Service
The refinery shutdowns are having a more immediate impact on gasoline futures, which jumped to two-year highs on Monday. It means drivers can soon expect higher prices at the pump.
Many areas along the Gulf Coast will not have access to gasoline for days or even weeks, said Greg McBride, the chief financial analyst at Bankrate.com. “Those areas that do have gasoline will have long lines, high prices and frequently run out quickly,” McBride said in a note.
Hurricane Harvey is the worst storm to hit Texas in half a century, with winds topping 130 mph and as much as 50 inches of rain expected to be dumped around Houston. By Monday morning, the storm, which made landfall as a Category 4 hurricane, had subsided to a tropical storm with winds of up to 40 mph.
While the storm’s impact is still being assessed, history shows that oil demand usually takes months to recover after a big hurricane.
- Goldman Sachs
The two outsize demand drops in the chart above were from the hurricanes Katrina and Rita in 2005 and Gustav and Ike in 2008.
“Two caveats to this historical template: the proximity of these pairs of hurricanes overstates the demand impact showed in Exhibit 10, while the magnitude of the onshore production impact of Harvey is unprecedented,” Courvalin said.
In other words, just three days after Harvey made landfall, the storm’s full impact on refineries remains unclear.
“I don’t see it being an extended outage because of just the sheer need” for gasoline, said Rob Thummel, a portfolio manager at Tortoise Capital, which manages $15 billion in energy assets. “These companies are pretty resilient – they persevere through these catastrophes and have been through them before,” he told Business Insider.
Here’s Goldman’s full list of the refineries at risk because of Harvey:
- Goldman Sachs