LONDON – Gasoline futures continued to soar Friday morning, as the after-effects of Hurricane Harvey heralded potentially fundamental long-term shifts in global oil and gas markets.
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The price of Nymex reformulated gasoline blendstock for September--the benchmark contract--was up nearly 14%, at $2.1470 a gallon, following eight days of gains that have driven prices up to two-year highs.
Since Harvey made landfall a week ago, the storm, which has since weakened to a tropical depression, has crippled more than 20% of U.S. refining capacity, resulting in a nationwide petroleum shortage that has seen gas prices spike across the globe.
Retail prices for gasoline neared $2.49 a gallon Thursday evening, according the Oil Price Information Service, and are expected to keep rising.
"There are very severe supply disruptions and we don't know how long it's going to last," Olivier Jakob, managing director at oil consultancy Petromatrix, said of gas shortages across the U.S.
"We have not had an event like this since 2005," he added, referencing the impact of Hurricanes Katrina and Rita on oil markets.
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Warren Patterson, a commodities strategist at ING Bank, said following Rita, it "took up to two months for refinery run-rates in the U.S. to recover back to levels prior to the storm."
Europe is already stepping in to fill the gap and refiners are expected to increase shipments of gasoline to the U.S. East Coast in the coming days, according to the experts. European gasoline refining margins this week hit their highest level in roughly two years.
With gasoline demand surging, the "only balancing mechanism" for supply-demand equilibrium is pricing, said Amrita Sen, chief oil analyst at consultancy Energy Aspects. She predicted prices would stay high well after U.S. refineries go back online, as the market readjusts to the roughly 3.3 million barrels of refined products that have been taken out of circulation as a result of the storm.
Crude prices, conversely, have so far mostly weakened since Harvey hit, as closed refineries have resulted in dried up demand for oil. WTI has been hit hardest with prices falling more than 2% since last week, while the WTI-Brent spread has widened to more than $5.
But crude prices are likely to also go up in the next couple of months on the back of higher product prices, Ms. Sen argued. "If you have a situation where product prices have to rise to curtail demand, you can't [sustain that] without higher crude," she said.
Crude prices fell in London midmorning trading on Friday, giving up some gains from the day prior that came from the storm's disruption to some crude production.
West Texas Intermediate futures were trading down 0.51%, at $46.99 a barrel on the New York Mercantile Exchange. Brent crude, the global benchmark, was down by 0.42%, at $52.63 a barrel on London's Intercontinental Exchange.
In the short-term, crude prices should face further pressure because U.S. crude stocks are likely increase, according to analysts at Commerzbank. "Crude imports and oil production in the Gulf of Mexico should be ramped up again more quickly than crude oil processing," the analysts contended in a note Friday. "This could put a question mark over the reduction of the oversupply and weigh on oil prices," they said.
Among refined products, ICE gasoil changed hands at $509.75 a metric ton, up nearly 1% from the previous settlement.
Marina Force contributed to this article.
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Oil prices edged lower Friday as the shutdown of several refineries in the wake of tropical storm Harvey suppressed demand.
Light, sweet crude for October delivery fell 10 cents, or 0.2%, to $47.13 a barrel on the New York Mercantile Exchange, down four out of the past five sessions. Brent, the global benchmark, was trading near flat at $52.85 a barrel.
Prices have come under pressure this week after Harvey made landfall in Texas as a Category 4 hurricane and was then downgraded to a tropical storm, dousing the coast with rain and flooding. While the storm disrupted some crude production, the industry expects a bigger impact on demand as refiners shut down or reduced operations.
"Harvey's impact continues to be the key short-term factor that the market is keeping an eye on, with a significant reduction in refinery operations curtailing oil demand," Robbie Fraser, commodity analyst at Schneider Electric, said in a Friday report.
According to the Energy Department, 10 refineries in the Gulf Coast region were shut down as of Thursday afternoon, nearly 17% of total U.S. refining capacity. However, some refiners have announced plans to restart facilities in the coming days, easing concerns of a fuel shortage.
"There's a lot of doom and gloom out there about their ability to come back from this, but in my experience, they come back a lot more quickly than people realize," said John Kilduff, founding partner at Again Capital. "The anxiety yesterday hit a crescendo and today we're seeing it get dialed back."
On Friday, gasoline prices pulled back after hitting a two-year high. Futures for October delivery were recently down 2.8% at $1.7289 a gallon on the New York Mercantile Exchange. Diesel prices fell 0.5% to $1.7341 a gallon.
"Indications that a couple of Texas ports could be reopening and a couple of pipelines out of the Houston region could be stepping up flows is contributing to some profit taking across the energy spectrum today," Jim Ritterbusch, president of Ritterbusch & Associates, wrote Friday in a research report.
With a key source of crude demand on hold, analysts and traders expect the amount of crude oil in storage to pile up over the next few weeks, reversing a trend that ignited hope a global rebalancing in the oil market was gaining traction.
As traders continue to assess the damage done in Harvey's aftermath, the market will once again turn its attention to the Organization of the Petroleum Exporting Countries, analysts said. The global cartel has struggled to mitigate a global supply glut as U.S. shale has increased production following OPEC's decision to curtail output.
--Marina Force contributed to this article.
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(END) Dow Jones Newswires
September 01, 2017 11:44 ET (15:44 GMT)