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Feature Article

OPEC Monthly Oil Market Report – September 2017

iii

Feature Article

The aftermath of Hurricane Harvey

The impact of Hurricane Harvey has been particularly damaging to the energy centres of Texas and Louisiana,

bringing to mind the destructive impacts of past storms, in particularly Hurricane Katrina in 2005. It also highlights

some important shifts that have occurred in the US energy sector since then.

In 2005, Hurricane Katrina temporarily shut in 1.4 mb/d of US Gulf production, representing 95% of output in the

area. Production was slow to return as the hurricane went directly through the offshore production area, causing

considerable damage to rigs and platforms. Onshore, the flooding and high winds heavily impacted the refining

sector, disrupting some 1.3 mb/d of refinery capacity concentrated along with US Gulf Coast, and inflicting major

damage to four refineries.

Hurricane Harvey, in contrast, has had less of an impact on US crude production, temporarily disrupting around

0.8 mb/d at its peak. Roughly half of this figure was from offshore production – which was spared the worst of the

storm – while the other 0.4 mb/d was from onshore production in the shale producing region of Eagle Ford. While

offshore production has been quick to return, there is still some uncertainty regarding the status of the affected

Eagle Ford output due to the accompanying severe rains and flooding.

Graph 1: US crude oil and gasoline price movements

Graph 2: US crude, gasoline and middle distillates

inventories overhang to 5-year average

Refineries and energy infrastructure – pipelines, port facilities, terminals – saw more of an impact, due mostly to

the tremendous rains that stretched from Houston into Louisiana, although facilities around Corpus Christi also

experienced high winds. At its peak, around 4.8 mb/d of refining capacity was offline. The Colonial Pipeline,

which ships up to 2.5 mb/d of petroleum products from Houston to the US Northeast, was also shut down.

Concerns about shortfalls led to a spike in gasoline prices, which jumped by 29% from the previous week to

$2.14/gal, the highest level since mid-2015 (

Graph 1

). The restart of refineries and pipelines, together with the

existing high stock levels (

Graph 2

) allowed gasoline futures prices to quickly return to previous levels, while the

shortfall of US products exports to nearby destinations has been accommodated by cargoes from other regions.

Hurricane Harvey had a bearish impact on NYMEX WTI values, which slipped 5% from the previous week to

$45.96/b. This was due to the fact that offshore facilities were not expected to see lasting damage. Additionally,

the development of the US shale industry has made US supply less vulnerable to storms. Although US Gulf

output has increased since Katrina, its share in US crude production has declined from 25% in 2005 to 18% in

2016, largely due to the emergence of the US shale industry. Also weighing on prices was reduced demand from

US refineries at a time when US crude stocks were at comfortable levels of 80.4 mb above the five-year average.

Following Harvey, the US Department of Energy has made some 5.3 mb of crude available for sale from its

Strategic Petroleum Reserve (SPR). Last week’s inventory report showed a draw of only 0.3 mb in SPR for the

week ending 1 September. This compares to a 20.8 mb release of SPR in the aftermath of Hurricane Katrina, as

part of a coordinated 60 mb offer by IEA Members. OPEC had also expressed its commitment to fill any supply

shortfall resulting from the effects of Hurricane Katrina.

In terms of the impact on US economic growth, the effects of Hurricane Harvey should be relatively minor, as

disruptions are expected to be largely offset by the increase in activities related to the rebuilding efforts including

$15.25 billion in aid approved by Congress. A similar impact was seen with Hurricane Katrina, where subsequent

rebuilding efforts helped to stimulate the economy. Similarly, the impact on US oil demand is expected to be

negligible, with offsetting revisions seen for 4Q17.

Despite the considerable damage, the US energy industry appears to be rebounding quickly. At the same time,

the emergence of Hurricane Irma and other storms raises the possibility of the 2017 hurricane season being

particularly destructive, with potential implications for the oil market. In response, OPEC reiterates its commitment

to working together with other stakeholders for the stability and security of the oil market, which is essential for

sustained economic growth and the advancement of global prosperity.

$45.96/b

$2.14/gal

1.5

1.7

1.9

2.1

2.3

45

46

47

48

49

50

17 Aug

19 Aug

21 Aug

23 Aug

25 Aug

27 Aug

29 Aug

31 Aug

02 Sep

04 Sep

06 Sep

08 Sep

US$/gal

US$/b

Crude oil (LHS)

Gasoline (RHS)

Sources: CME Group and OPEC Secretariat.

Hurricane Harvey

entered the US

80.4

10.6

11.0

0

5

10

15

20

25

70

75

80

85

90

95

100

105

07 Jul

14 Jul

21 Jul

28 Jul

04 Aug

11 Aug

18 Aug

25 Aug

01 Sep

mb

mb

Crude (LHS)

Gasoline

Middle Distillates

Sources: US EIA and OPEC Secretariat.