Tropical Storm Harvey inundated the U.S. Gulf Coast and knocked out several refineries, disrupting the flow of refined fuel products and supporting energy-related exchange traded funds.
For instance, the United States Gasoline Fund (NYSEArca: UGA) was up 1.8% while RBOB gasoline futures were 2.8% higher to $1.7135 per gallon. Additionally, the United States Diesel-Heating Oil Fund (NYSEArca: UHN), which follows futures contracts on heating oil or No. 2 fuel, gained 1.2% as heating oil futures were 0.7% higher to $1.6337 per gallon.
Flooding caused by Harvey forced refineries around the Gulf Coast to close, which weighed on production or supply of refined energy products like gasoline and heating oil.
The damages from Hurricane Harvey are expected to cut at least 1 million barrels per day from refining capacity, with Shell, Exxon and several other refineries in the area announced plans to shut down on Sunday, CNBC reports.
“The big picture is that we’ve got all the refineries down in Corpus Christi and half of them are now down in the Houston area. And I anticipate the other half are going to shut down over the next couple of days, which means that one-fifth of the nation’s capacity is offline. The biggest issue that they’re facing is the amount of flooding and the damage to the equipment that perhaps might keep them offline for weeks or even months,” Andy Lipow, president of Lipow Oil Associates, told CNBC.
Meanwhile, refining and Shipping sources believe U.S. traders were seeking out oil product cargoes from North Asia, with transatlantic fuel exports from Europe also expected to rise if U.S. refiners remain offline.
“Global refining margins are going to stay very strong,” Olivier Jakob, managing director of Petromatrix, told Reuters. “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.”
Related: Refinery ETF Capitalizes on Hurricane Harvey Landfall
Goldman Sachs analysts project refined product prices could rise further in the wake of the storm. Looking at the effects of past hurricanes, Goldman calculated the storm could cut gasoline supplies by 615,000 to 785,000 barrels per day and diminish distillate supplies by 700,000 barrels per day.
“Larger refinery outages would increase these long crude and short product impacts,” Goldman said. “The loss of (U.S. Gulf Coast) refining capacity will further support refinery margins for non-affected refiners to incentivize them to operate at higher utilization.”
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