Russell: Harvey May Succeed Where OPEC Has Struggled by Boosting Oil Prices
(The opinions expressed here are those of the author, a columnist for Reuters.)
LAUNCESTON, Australia, Aug 28 (Reuters) - Hurricane Harvey may achieve in global crude oil markets in a few days what OPEC and its allies have struggled to achieve in months - a tightening of supplies and a rise in prices.
Harvey, which has been downgraded to a tropical storm, hit the coast of Texas on Friday as the most powerful hurricane to hit the U.S. state in more than 50 years, causing widespread damage and flooding.
The region where the storm struck is home to some 2.2 million barrels per day (bpd) of refining capacity as well as being a major shipment point for both imports and exports of crude oil and fuel products.
The refining capacity that has been idled because of the storm is about 11.2 percent of the U.S. total, and the immediate impact is being felt in gasoline prices.
Benchmark U.S. gasoline futures jumped as much as 6.8 percent in early trade on Monday in Asia to touch $1.7799 a gallon.
Brent crude, the global oil benchmark, rose as much as 0.8 percent in early Asian trade, reaching as high as $52.84 a barrel.
So far, this would imply the crude market is fairly relaxed about the impact of Harvey, but it's possible the effect of the storm will travel far beyond U.S. gasoline prices, given the United States' status as an emerging power in crude and refined product exports.
It has been U.S. shale oil output that has largely frustrated efforts by the Organization of the Petroleum Exporting Countries (OPEC) and their allies to drive crude prices higher this year by restricting their own production.
While much of the offshore crude production in the Gulf of Mexico was shut in ahead of Harvey's passage, the yet to be quantified damage from the storm may lie with the onshore, shale oil output that was in the storm's path.
The Eagle Ford shale basin lies in the path of the storm and producers in the region have idled production.
Among those oil companies that have halted operations in the Eagle Ford are ConocoPhillips, which produced 161,000 bpd of oil equivalent at the end of 2016 in the region, BHP Billiton with 99,000 bpd and Murphy Oil with 46,000 bpd, according to a report from S&P Global Platts.
The risk is that this onshore production takes longer to return than the market may expect, given the apparent widespread damage to infrastructure from flooding in the region and the length of time it may take floodwaters to recede.
If this is the case, customers for U.S. crude and product exports may well find themselves scrambling to line up replacement cargoes.
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