U.S. crude oil futures fell more than 3 percent on Monday but gasoline prices surged to two-year highs as Tropical Storm Harvey kept hammering the U.S. Gulf Coast, knocking out several refineries which backed up crude supplies and disrupted fuel production.
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Massive floods caused by the storm forced refineries in the area to close. In turn, U.S. crude futures fell as the refinery shutdowns could reduce demand for American crude.
“The reduced inputs to those Gulf refineries will result in an increase in crude inventories," said Tony Headrick, energy market analyst at CHS Hedging, "That outweighs the outages in crude oil production from the storm.”
U.S. West Texas Intermediate (WTI) crude futures were down $1.64 or 3.4 percent to 46.23 at 12:36 p.m. EDT (1636 GMT) Brent crude futures were down 68 cents or 1.3 percent at $51.73 per barrel.
The WTI discount versus Brent <CL-LCO1=R> expanded to as much as $5.48 per barrel, its widest in two years.
Prompt U.S. gasoline differentials in the Gulf Coast hit a five-year high.
Spot prices for U.S. gasoline futures surged 7 percent to a peak of $1.7799 per gallon, the highest since late July 2015, before easing to $1.7346 by 12:30 EDT (1630 GMT).
Harvey, the most powerful hurricane to hit Texas in more than 50 years, killed at least two people, caused large-scale flooding and forced closure of Houston port and several refineries.
The International Energy Agency in Paris said it was monitoring the storm are ready to respond to major oil supply disruptions.
The U.S. National Hurricane Center said Harvey was expected to linger close to the shore through Tuesday, with floods spreading from Texas eastward to Louisiana.
Texas is home to 5.6 million bpd of refining capacity, and Louisiana has 3.3 million bpd. Estimates say the storm has taken more than 2 million bpd of refining capacity offline.
Sources said the Motiva Port Arthur refinery in Texas, the largest U.S. refinery, was considering a shutdown.
U.S. traders were seeking oil product cargoes from North Asia, several refining and shipping sources told Reuters, with transatlantic fuel exports from Europe expected to surge.
"Global refining margins are going to stay very strong," said Olivier Jakob, managing director of Petromatrix.
"If (U.S.) refineries shut down for more than a week, Asia will need to run at a higher level, because there's no spare capacity in Europe."
On Monday Mexico's Pemex said supply of fuel was guaranteed in light of Harvey.
About 22 percent, or 379,000 bpd, of Gulf production was idled due to the storm as of Sunday afternoon, the U.S. Bureau of Safety and Environmental Enforcement said.
There might also be around 300,000 bpd of onshore U.S. production shut in, trading sources said.
In Libya pipeline blockades by militia brigades have slashed the OPEC state's output by nearly 400,000 bpd.
(By Julia Simon; Additional reporting by Ahmad Ghaddar in London, Henning Gloystein in Singapore; Editing by Dale Hudson and David Gregorio)