New York (REUTERS) - US gasoline futures jumped 4 per cent while crude prices were mixed on Tuesday (Aug 29) after a hurricane shut down nearly a fifth of the country's refining capacity, curbing fuel production and further bloating crude inventories.
About 3.65 million barrels per day of refining capacity are offline in Texas and Louisiana, or nearly 20 per cent of total US capacity, based on company reports and Reuters estimates. Restarting plants even under the best conditions can take a week or more.
"Because that demand is gone that's where the selling pressure in the market is coming from," said Gene McGillian, manager of market research at Tradition Energy. "We have no idea when (the refineries will) come back on, the market is taking a wait and see approach."
In US gasoline markets, futures jumped 4 per cent to settle at US$1.7833, the highest in more than two years.
Retail gasoline prices have started to rise, too, with the average gallon of gasoline rising 1 cent overnight to US$2.38 nationally. The average price in Texas rose 2 cents to US$2.19 per gallon.
Prices would be higher if not for record refinery runs in 2017, says Matt Smith, director of commodity research at Clipperdata.
"They're not spiking as much as they would have had we not had the backdrop of plentiful inventories," said Smith, adding that gasoline supplies sit at a five year high for this time of year.
The US Gulf Coast is home to nearly half of domestic refining capacity, with some 5.6 million bpd of capacity in Texas and 3.3 million bpd in Louisiana.
More refinery closures were expected, as parts of Texas have received more than 4 feet (1.2 metres) of rain. Fuel prices were expected to keep rising as refining capacity remains down and pipelines run short.
The country's largest crude oil refinery was shutting down on Tuesday night due to flooding from Harvey in its 603,000 bpd Port Arthur, Texas, plant, said sources familiar with operations.
The refinery's owner, Motiva Enterprises, said the refinery was operating at 40 per cent capacity on Tuesday evening. Earlier in the day, the refinery was operating at 60 per cent of its capacity, the company said.
Energy industry intelligence service Genscape said the refinery was using its safety flare system on Tuesday night. Flares can be a signal of the shutdown of a unit or units at a refinery. The flaring triggered messages on social media of a fire at the refinery. Motiva said there was no fire at the refinery on Tuesday.
With the shutdown of the Motiva refinery, 19.6 per cent or 3.65 million bpd of US refining capacity will be shut due to Tropical Storm Harvey.
Explorer Pipeline, which runs from Texas to Chicago, will shut two lines early on Wednesday.
"These closures are already impacting markets, with crude prices lower on a perceived drop in demand and gasoline prices spiking in response to lower supply," said Sandy Fielden, director of oil and products research at Morningstar.
US West Texas Intermediate crude edged down 13 cents, or 0.3 per cent, to US$46.44 a barrel.
Colonial Pipeline, the key artery sending gasoline up the East Coast, was still shipping barrels there but had faced flooding at origination points in Texas.
The US Northeast was already dealing with reduced supply. Philadelphia Energy Solutions, the region's largest refiner, said it had sold all its available regular gasoline barrels because of increased demand, while Monroe Energy's refinery had increased runs.
"Harvey will raise product prices nationwide, denting demand, especially in September," said Barclays analysts in a note on Tuesday.
Valero Energy Corp shut the large crude distillation unit and the gasoline-producing fluidic catalytic cracking unit at its 335,000-bpd Port Arthur, Texas, refinery.
Marathon Petroleum Corp was shutting two refineries in the Houston area on Tuesday because of flooding, according to sources familiar with plant operations. The 459,000-bpd Galveston Bay Refinery in Texas City, Texas, 45 miles (72 km) south of Houston, has flooding in its tank farm and on nearby streets, the sources said.
Exxon has shut its 362,300-bpd Beaumont refinery in east Texas because of high water in the plant, said sources familiar with the plant. The company earlier shut production at its Baytown, Texas, refinery, the nation's second largest.
Yet crude remains in ample supply. Jefferies bank said it was lowering its fourth-quarter Brent oil price estimates to US$55 a barrel from US$60 and its 2018 forecast to US$57 from US$64.