Gasoline hit two-year highs early on Monday as massive floods caused by Hurricane Harvey forced refineries across the U.S. Gulf Coast to shut down.
Texas is home to 5.6 million barrels of refining capacity per day, and Louisiana has 3.3 million barrels. Around 2 million barrels per day of refining capacity were estimated to be offline as a result of the storm.
In crude oil markets, the picture was mixed as it was not clear how much oil output had been affected by the storm. If oil production is little affected, there could be excess crude as refiners don’t process crude to produce fuel.
Spot prices for U.S. Gasoline futures surged 7 percent to a peak of $1.7799 per gallon, the highest level since late July 2015, as the fierce storm battered large parts of the Gulf coast of Texas, the heart of the U.S. Oil industry.
In crude, U.S. West Texas Intermediate (WTI) crude futures were at $47.66 a barrel at 0030 GMT, down 21 cents, or 0.2 percent, from their last settlement.
Although the full extent of the storm’s damage is not yet clear, some analysts say that the impact would be felt globally and affect energy markets for weeks as numerous refiners shut down due to the floods.
The U.S. National Hurricane Center (NHC) said on Monday that Harvey was moving away from the Texas coast but was expected to linger close to the shore through Monday, resulting in ongoing strong rainfall and flooding.
Houston’s port authorities said that all facilities would be closed on Monday due to the continued weather threat.
“Because it is a slow-moving storm, it (Harvey) is dropping massive amounts of water on the region… As a result of the flooding, a large amount of refining capacity is offline meaning that gasoline production is severely curtailed,” said William O’Loughlin, investment analyst at Rivkin Securities.
As of Sunday afternoon, about 22 percent, or 379,000 barrels, of Gulf production was idled due to the storm, according to the U.S. Bureau of Safety and Environmental Enforcement.
In international oil markets, Brent crude futures were stronger at $52.60 per barrel, up 19 cents, or 0.4 percent as the Organization of the Petroleum Exporting Countries (OPEC) holds back production in order to prop up prices.
OPEC, together with other producers including Russia, has pledged to cut output by around 1.8 million barrels per day (bpd) this year and during the first quarter of 2018.