While hurricane Harvey threatens catastrophic rainfall and flooding, U.S. oil refineries and related exchange traded fund are thriving on the misery.
The VanEck Vectors Oil Refiners ETF (NYSEArca: CRAK), the first dedicated exchange traded fund play on oil refiner equities, was 0.8% higher Friday and up 3.7% over the past week.
Refining stocks strengthened as investors looked to the surge in the so-called gasoline crack spread, a measure of profits from processing crude oil into fuel. The crack spread usually widens with storm-related production outages as the impact on refineries are typically more pronounced than the impact on demand for refined fuel like gasoline.
Hurricane Harvey has already strengthened to a category 3 as it neared Texas, with the National Hurricane Center anticipating “catastrophic” storm-surge flooding after landfall late Friday. The hurricane has already disrupted normal operations around the Gulf Coast, which makes up almost half o the country’s refining ability.
Refineries may also take weeks to come back online if conditions deteriorate further and damage electric pumps. If the flooding at refineries causes prolonged delays to repair damages, the crack spread could continue to widen with gasoline prices further rising and crude oil under greater pressure due to the diminished demand from refineries.
On the other hand, crude oil refineries could be in for a quick pullback if the hurricane passes without a hitch as refineries turn back online in an orderly fashion, which would cause the crack spread to quickly reverse.