Crude oil prices jumped higher Tuesday morning and gasoline prices slid, as closed refineries and other oil infrastructure continued to restart in the wake of Hurricane Harvey.
Pipelines, refineries and ports were forced to shut down as the storm approached earlier this month and remained closed as it lingered, dousing much of the Gulf Coast with rain and causing historic flooding.
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But major pipelines are once again carrying crude from Texas oil fields to the Gulf, where some refineries are able to start buying again and ports in Houston and Corpus Christi are allowing cargoes of oil and fuel to come in and out.
"The healing from Harvey has begun for energy markets," analysts at TAC Energy wrote in a client note Tuesday.
U.S. crude futures rose $1.37 or 2.9%, to $48.66 a barrel on the New York Mercantile Exchange -- their highest settlement since August 11. Brent, the global benchmark, traded up $1.04, or 1.99%, at $53.38 a barrel on ICE Futures Europe -- its highest level since May 24.
Harvey, which made landfall as a Category 4 hurricane and was downgraded to a tropical storm, knocked out more than 20% of U.S. refining capacity, stoking fears of a nationwide fuel shortage and causing crude supplies to build up in storage. Analysts expect this week's data from the U.S. Energy Information Administration to show an increase in the amount of oil in storage tanks.
But some plants are reopening -- Valero Energy Corp., for example, said its plants in Corpus Christi and Texas City are operating at "pre-hurricane rates," and other plants in the region are ramping up and preparing to restart. Exxon Mobil Corp. has said it working to restart its Baytown refinery -- the second largest fuelmaking plant in the U.S.
The renewed demand from refiners is supporting crude prices, said Ehsan Ul-Haq, director at consultancy Resource Economist Ltd.
And gasoline prices are falling as major fuel arteries are returning to service, easing fears of fuel shortages. Gasoline prices had surged to a two-year high last week.
Colonial Pipeline Co., which operates a vital pipeline that pumps gasoline from Texas to the East Coast, said it expects to restart shipments today.
Gasoline futures fell 4.88 cents, or 2.79%, to $1.6991 a gallon. Diesel futures edged up 0.12 cent, or 0.07%, to $1.7480 a gallon.
Still, some refining capacity remains offline and will be slow to come back, and U.S. exports from the Gulf Coast should take longer to jump-start.
This has meant "unusual trade routes are opening up" to both fill the gap left by the Gulf Coast refined product producers, including the potential shipping of jet fuel from northeast Asia to the U.S. East Coast, according to analysts at oil consultancy JBC Energy.
Meanwhile, traders and analysts were closely watching the potential impact of rising tensions between the U.S. and North Korea on oil markets. The U.S. on Monday called for the "strongest possible measures" against North Korea at an emergency U.N. Security Council meeting, a response to Pyongyang's testing of a hydrogen bomb this past Sunday.
"When global powers are gazing at each other the stock markets and ultimately oil demand will suffer," argued Tamas Varga, an analyst at oil brokerage PVM Associates Ltd.
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(END) Dow Jones Newswires
September 05, 2017 16:48 ET (20:48 GMT)