Oil rises, gasoline up 13% as U.S. refineries reel

One-quarter of national capacity now off-line

NEW YORK • Gasoline futures surged more than 13 per cent on Thursday, and crude oil settled nearly threeper-cent higher, as almost a quarter of U.S. refining capacity remained off-line and traders scrambled to reroute millions of barrels of fuel.

U.S. gasoline futures have rallied more than 28 per cent from the previous week to a two-year high above US$2 a gallon, buoyed by fears of a fuel shortage days ahead of the U.S. Labour Day weekend’s traditional surge in driving. Gasoline settled up 25.52 cents, or 13.54 per cent, at US$2.1399.

Hurricane Harvey, which brought record flooding to the U.S. oil heartland of Texas and killed at least 35 people, has paralyzed some 4.4 million barrels per day (bpd) of refining capacity, according to company reports and Reuters estimates.

The U.S. Department of the Interior said that roughly 13.5 per cent of oil production in the Gulf of Mexico was also shut in on Thursday.

The U.S. government tapped its strategic oil reserves for the first time in five years on Thursday, releasing 1 million barrels of crude to a working refinery in Louisiana. Traders were also scrambling to redirect fuel to the United States.

West Texas Intermediate (WTI) crude futures settled US$1.27 higher at US$47.23 per barrel, up 2.76 per cent. International benchmark Brent crude settled US$1.52 higher, or 2.99 per cent, at US$52.38 a barrel.

“The market has turned in reverse pretty sharply,” said Gene McGillian, manager of market research at Tradition Energy. “You do have some signs of rebalancing, regardless of Harvey.”

On Wednesday, oil prices fell despite a weekly drop in closely watched U.S. commercial crude stocks of 5.39 million barrels. Crude inventories are 14.5-per-cent below record levels hit in March.

OPEC output this month also fell 170,000 bpd from a 2017 high, a Reuters survey found, as renewed unrest cut supplies in Libya and other members stepped up compliance with a productioncutting deal

Analysts called the status of U.S. refineries a key to oil prices. “The disruptions in recent days may delay the ongoing global crude oil rebalancing process,” Bank of America Merrill Lynch said.

Analysts at Goldman Sachs and Stifel said U.S. outages would probably last several months but it was difficult to estimate the exact damage. Others said higher gasoline prices might prompt operational refineries to delay typical September seasonal maintenance.

“Refineries outside the affected area may delay maintenance to benefit from high processing margins,” said Commerzbank oil analyst Carsten Fritsch. “Hence, the negative impact on crude oil demand and oil product supply might be less severe than feared.”