U.S. gasoline futures surged on Monday after Hurricane Harvey knocked out almost 15% of the nation's refinery capacity, with the extent of the damage still unclear.
Harvey is the first hurricane to hit U.S. refineries since the country's emergence as a growing producer and exporter of oil, so the impact is expected to be felt further afield than with previous tropical storms.
Nymex reformulated gasoline blendstock--the benchmark gasoline contract--rose 3.1% to $1.59 a gallon. ICE gasoil changed hands at $485.75 a metric ton, up $5.75 from the previous settlement.
Energy companies are still assessing the damage from Harvey, after the storm shut down refineries, including Exxon Mobil Corp.'s Baytown facility near Houston, second in size only to Saudi Arabian Oil Co.'s Port Arthur refinery, which is in the storm's projected path.
"It will probably be a couple of days before we get clarity on the duration of closures," said Ric Spooner, chief markets strategist at CMC Markets, adding that prices are likely to remain volatile in the near term as investors focus on the storm damage.
It can take weeks or even months to get new electrical equipment and other parts installed to repair damage from flooding. Harvey's path cuts right through the heart of U.S. oil infrastructure, with the Texas coast being home to nearly 30% of the country's refining capacity.
The reduced refining capacity is expected to hit U.S. crude demand, while also having a knock-on impact on global futures markets. On the New York Mercantile Exchange, West Texas Intermediate futures were trading down 0.9% at $47.45 a barrel. Brent crude, the global oil benchmark, rose 0.02% to $51.99 a barrel on London's ICE Futures exchange.
"A prolonged disruption of U.S. cargoes to Asia will send regional buyers in search of comparable light grades, hence why Brent futures have pushed higher today while WTI is weaker," said Edward Bell, analyst at Dubai-based Emirates NBD Bank.
Analysts said that the shutdown of two oil fields in Libya was also supportive of Brent crude prices.
Harvey also halted activity at several big offshore oil and gas platforms in the Gulf of Mexico. The platforms account for roughly 22% of offshore oil production capacity in the Gulf.
Investors will have their eyes on the U.S.'s Energy Information Administration stockpiles data this week, which could potentially cushion some of the impact on reduced supplies caused by Harvey. U.S. refiners produced record amounts of fuel during the summer.
"The weekly EIA data will likely send some conflicting signals over the next few weeks--lower production, lower refinery demand with a likely build in stocks as oil produced further inland is unaffected and dumped into stocks--and could result in prices whipsawing as we enter a seasonal refinery downturn," said Mr. Bell.
Write to Sarah McFarlane at firstname.lastname@example.org and Biman Mukherji at email@example.com
(END) Dow Jones Newswires
August 28, 2017 05:32 ET (09:32 GMT)