Harvey knocks out more oil refineries

DALLAS » Hurricane Harvey is sending pump prices higher for U.S. motorists and causing temporary shifts in the flow of oil and gasoline around the world after taking down a huge chunk of U.S. refining capacity.

It will be days or even weeks before the energy sector in the southeast Texas Gulf Coast is back to normal operations as it deals with flooding in the aftermath of Harvey, which has been downgraded to a tropical storm. The region from Corpus Christi, Texas, where Harvey made landfall, to the Louisiana state line accounts for about 3 percent of the U.S. economy and is a crucial export market for oil and chemicals.

Wednesday brought news that the nation’s biggest refinery, which was already running below half-speed, had begun a complete shutdown. The Motiva Enterprises plant in Port Arthur, Texas, run by a unit of the state-owned oil company of Saudi Arabia, was the latest domino to fall among Gulf Coast refineries.

With that, gasoline futures headed higher for a third straight day. By afternoon, they had climbed 9 cents to $1.87 a gallon.

Retail prices climbed, too, up 2 cents on Wednesday and 7 cents in the past week, to a national average price of $2.42 per gallon, according to Gasbuddy.

“In terms of product price increases, it might get worse before it gets better,” said Rob Smith, an energy analyst with IHS Markit.

It could take two weeks or longer before big refineries in the Houston area can recover from a recordsetting deluge and resume normal operations. That assumes they didn’t suffer serious damage, which is still unknown.

Harvey isn’t the first big storm to hit the refineryrich Gulf Coast, but the oil industry has undergone big changes since the last major interruption from Hurricane Ike in 2008.

The so-called shale revolution has led to a surge in oil production in the U.S., increasing the nation’s exports of crude oil and gasoline to Mexico and other places in Latin America and diesel to Europe.

When the U.S. can’t produce enough gasoline or diesel to meet export demands, other regions are forced to look for replacement supplies “and the backfill has to come from further away,” said Richard Joswick, an analyst with S&P Global Platts. “It has to come from Asia even.”

The result will be higher prices, but it should be just a one- or two-week problem, Joswick said.

Patrick DeHaan, an analyst for GasBuddy, predicts that U.S. gasoline prices will top out around $2.50 or $2.55 a gallon, an increase of up to 20 cents since Harvey hit, with bigger spikes closer to the Gulf.

The recovery from Harvey will mimic the storm’s path from west to east. Flint Hill Resources’ refinery in Corpus Christi, where Harvey made landfall as a Category 4 hurricane, could begin to restart — a process that takes days — as early as Wednesday. Other refineries in the area are likely to do the same later this week.

“It takes some time to start up a refinery under normal circumstances, and it wouldn’t be surprising if they run into hiccups,” said Smith, the HIS Markit analyst. “It could be a week if not longer before Corpus Christi is at normal operations.”