U.S. Gulf Coast refiners begin recovery amid holiday

As much of the U.S. shut down for Monday’s Labor Day holiday, Gulf Coast refiners continued their recovery from the devastation of Hurricane Harvey.

Valero Energy returned two Texas refineries to prestorm fuel-making rates while three other plants were in various stages of resuming operations, said Lillian Riojas, a spokeswoman for the San Antonio-based company. Exxon Mobil began shipping gasoline and diesel in Houston-area pipelines, although its Beaumont refinery was too flooded to turn back on. Flint Hills Resources and Citgo Petroleum also were in the process of resuming production, according to Genscape.

Gasoline futures surged to a 26-month high last week as Harvey’s churn across southeast Texas and Louisiana knocked out refineries, pipelines and ports responsible for producing and dispatching much of the continent’s gasoline, diesel and jet fuel. The rally began to fizzle as domestic refiners bailed out swamped plants and resumed operations, while global traders swooped in with cargoes to capture profits.

“We have seen a fair amount of refinery capacity return online but there still is a significant amount that is still offline between the Houston-Beaumont-Port Arthur region,” Andy Lipow, president of Lipow Oil Associates in Houston, said by telephone. “The market is pricing in a rather quick recovery in the Houston area but it might still be several weeks for the Houston area refiners to return to full production.”

Gasoline futures for October delivery declined by 3.3 percent to $1.6906 a gallon, the lowest in more than a week. The price reached its peak Aug. 31 when the futures jumped 14 percent to close at $2.1399.

Harvey, which made landfall twice along the U.S. Gulf Coast, bringing torrential flooding that shut pipelines and took about 3.53 million barrels, or 19 percent, of daily U.S. refining capacity offline, data compiled by Bloomberg showed. The Energy Department approved the release of 5.3 million barrels of crude from the Strategic Petroleum Reserve to aid refiners whose oil deliveries were interrupted by the storm.

Hurricane Irma could strengthen over the next 48 hours and is expected to be near the northern Leeward Islands on Tuesday night or Wednesday morning, according to an advisory on the National Hurricane Center website. The weather system may threaten the Gulf refining recovery, noted Lipow.

“Irma is a concern because it appears to be heading over Cuba and then into the Gulf of Mexico and could impact oil production and refineries once again,” he said. “This has not been reflected in the price quite yet because it is a ways out,” he added, but should it hit the Gulf Coast in the next week “gasoline prices and oil prices will both increase.”