LONDON – Oil prices fell and gas futures continued to soar on Wednesday as Tropical Storm Harvey flooded the Texas Gulf Coast, crippling the region's refining capacity and raising fears of fuel shortages.
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The New York Mercantile Exchange reformulated gasoline blendstock--the benchmark gasoline contract--closed trading Tuesday at a near two-year high. RBOB futures continued to rise, up nearly 2%, at $1.60 a gallon. ICE gasoil changed hands at $489.75 a metric ton, up more than 1% from the previous settlement.
But on oil markets, West Texas Intermediate futures were trading down 0.73%, at $46.10 a barrel on the New York Mercantile Exchange. Brent crude, the global benchmark, was down nearly 1%, at $51.17 a barrel in London midmorning trading.
Refinery shutdowns across Texas mean that crude oil inventories are likely to rise as refiners no longer have the capacity for further oil intake. That has weighed on crude prices while, inversely, gasoline and other refined product prices have soared on fears of fuel shortages across the country.
Harvey, which first made landfall Friday as a hurricane, remains the "dominating fact" in oil markets, said Iain Reid, head of European oil and gas research at Macquarie Group Ltd.
The largest refinery in the U.S., operated by Saudi Arabia state oil giant Saudi Aramco in Port Arthur Texas, said late Tuesday it had reduced its production rate to 40% capacity.
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In publicly-listed companies, U.S.-based Exxon Mobil Corp. was most affected, with 20% of its refining capacity taken offline, said Mr. Reid.
With heavy rainfall expected for the rest of the week, it "will be a while before operations can return to normal and the U.S. refining industry is bracing itself for an extended shutdown," wrote Stephen Brennock, an analyst at oil brokerage PVM Oil Associates Ltd., in a note Wednesday.
As a result, U.S. refiners in the Midwest and on the East Coast stand to reap "windfall profits as they try to fill the gap left by Gulf Coast refiners, with cracks continuing to soar," according to analysts at consultancy JBC Energy.
Meanwhile, the market largely shrugged off data from the American Petroleum Institute, an industry group, showing a further drawdown in U.S. crude stocks last week, by 5.8 million barrels. Analysts will be looking ahead to official government data from the U.S. Energy Information Administration due Wednesday afternoon.
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Oil prices wavered between gains and losses on Wednesday, as Tropical Storm Harvey continued to dump rain along the Gulf Coast and forced the full shutdown of the nation's largest refinery.
After making landfall on the Texas coast this weekend, Harvey moved east and came ashore again in Louisiana, threatening to disrupt more of the area's refining capacity and compounding fears of fuel shortages.
On Wednesday, Motiva announced that it is shutting down its 603,000-barrel-a-day refinery in Port Arthur, Texas. The largest refinery in the U.S. is the latest to be affected by rain and flooding from Harvey, which has taken about 20% of the country's refining capacity offline.
"This is as bad as it's ever been," said Kyle Cooper, a consultant at ION Energy Group in Houston. "I would say that to a large extent, the worst is being priced in" to the market.
Gasoline prices surged to a one-month high as traders anticipated a shortage of supply following the tropical storm. Futures for September delivery rose 6.4% to $1.8981 a gallon on the New York Mercantile Exchange, and diesel futures for September delivery gained 2.3% to $1.7029 a gallon.
Meanwhile, light, sweet crude for October delivery was recently up 18 cents, or 0.4%, at $46.62 cents, reversing losses that led prices to a one-month low earlier in the session. Brent, the global benchmark, lost 20 cents, or 0.4%, to $51.80 a barrel.
Refinery shutdowns across Texas will mean less demand for crude oil, a dismal sign for those hoping that a global glut of crude has been abating in recent months.
In data released Wednesday, the U.S. Energy Information Administration reported that crude stockpiles fell by 5.4 million barrels in the week ended Aug. 25, exceeding analyst expectations for a drop of 1.8 million barrels and marking the ninth-consecutive week of inventory declines.
The report lent some support to crude prices, but analysts were cautious to interpret the storage numbers as a current projection of the market. The storm also looks poised to muddle EIA data for the next few weeks, overshadowing its importance as a gauge of supply and demand balance.
The data "is more of a historical artifact than a fresh signal," Citi Futures analyst Tim Evans said in a Wednesday report.
Traders remained focused on signs on how Harvey will continue to affect refiners as it moves into Louisiana. While some Corpus Christi refiners have already announced plans to restart in the coming days, analysts said further rainfall along Harvey's path could keep refining capacity offline longer than some expect.
"The continued increase in flooding creates high uncertainty on the amount of damage that U.S. refineries will incur, the pace at which the shut down will reverse and the magnitude of capacity that will be impaired over the next few months," Goldman Sachs analysts wrote in a Wednesday note.
Dan Molinski and Christopher Alessi contributed to this article.
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(END) Dow Jones Newswires
August 30, 2017 12:38 ET (16:38 GMT)