Energy chief taps emergency oil reserve in wake of Harvey

Gasoline surged early today as storm damage continued to put refinery supplies under pressure.

When the USA 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.

Texas is central to every step of the U.S. gasoline supply chain.

Analysts said that the imminent end of the summer driving season and substantial inventories of gasoline and diesel would help dampen any price increase from Harvey.

Massive floods caused by Harvey forced several refineries to close along the U.S. Gulf Coast, while heavy rains were spreading into the greater Houston area, which has already been hit by catastrophic flooding. “There’s plenty of crude oil”, said Tom Kloza, global head of energy analysis at the Oil Price Information Service.

The release of 1 million barrels is the first tapping of the SPR, which now holds 679 million barrels of crude oil, for an emergency since hurricane Isaac in 2012.

“Basically this will affect everyone across the country on some level and your proximity to the supply chain will affect how severe the impact is to you”, said Jeff Lenard, NACS vice president of strategic industry initiatives, which represents 80 percent of all gasoline volume sold in the country. The Gulf accounts for almost half of total USA refining capacity. The slump in commodity prices has swayed the fundamentals of the industry, leaving it susceptible to every unforeseen event that can impact the demand and supply factors of oil.

The price of West Texas Intermediate oil, the USA benchmark, has fallen to just above $46 per barrel.

Now, those high oil inventories are providing a helpful cushion in the aftermath of Harvey.

“The average cost of gasoline for store owners in our area has gone up around 5 to 10 cents since Wednesday”, said Eric Taylor, general manager for Blair-based Taylor Oil, which owns and operates 7 Taylor Quik Pik stores surrounding Omaha and supplies fuel to six other gas stations.

“About 3 million bpd (barrells per day) of USA refining capacity had already been shut, with more shutdowns expected”, Reuters reported.

Motiva’s move to cut back operations follows ExxonMobil’s decision to shut down its oil refinery in Baytown, Texas on Sunday. Motiva Enterprises LLC ‘s Port Arthur facility in Texas, the biggest US refinery, is shutting because of severe flooding.

A hurricane in the heart of the USA energy industry is set to curtail near-record US oil production for several weeks, with the impact expected to reverberate throughout the country and across global energy markets. Worse, refined product output in Latin America has fallen recently, with Mexico and Venezuela most vulnerable to supply outages in Texas.

Still, Harvey has dealt a serious blow to refineries, ports and production in the U.S. Gulf Coast, which is the nation’s key energy hub. It runs underground and is now under water in many parts of Texas, where inspections are needed before it can be fully operational again, Colonial spokesman Steve Baker said Thursday. A decade ago, prior to the United States shale revolution, the Gulf of Mexico made up a larger percentage of total U.S. oil production (closer to 30% vs current levels near 15%).