OB08_092017
Previous Page  89 / 96 Next Page
Information
Show Menu
Previous Page 89 / 96 Next Page
Page Background

Monthly Oil Market Report

O P E C

12 September 2017

Feature article:

The aftermath of Hurricane Harvey

Oilmarkethighlights

Featurearticle

Crudeoilpricemovements

Commoditymarkets

Worldeconomy

Worldoildemand

Worldoilsupply

Productmarketsand refineryoperations

Tankermarket

Oil trade

Stockmovements

Balanceofsupplyanddemand

i

iii

1

8

12

31

43

61

69

73

81

88

87

OPEC bulletin 8–9/17

In the September 2017

Monthly Oil Market Report (MOMR),

OPEC

reported on the impacts Hurricane Harvey was having on the oil

industry in the US and worldwide.

In a feature story entitled: ‘The aftermath of Hurricane Harvey’,

the

MOMR

reported that the massive storm had caused significant

damage to the US oil hubs located along the Gulf of Mexico in the

states of Texas and Louisiana.

The report noted that this was the latest of many destructive

storm systems that have hit the US Gulf coast-based oil industry

throughout history, including Hurricane Katrina in 2005, which took

a greater toll on the industry than Harvey.

“In 2005, Hurricane Katrina temporarily shut in 1.4m b/d of

US Gulf production, representing 95 per cent of output in the area.

Productionwas slow to return as the hurricanewent directly through

the offshore production area, causing considerable damage to rigs

and platforms,” the report pointed out. “Onshore, the flooding and

high winds heavily impacted the refining sector, disrupting some

1.3mb/d of refinery capacity concentrated along with US Gulf Coast,

and inflicting major damage to four refineries.”

Hurricane Harvey, according to the report, has had less of an

impact on US crude production, temporarily disrupting around

800,000 b/d at its peak. Roughly half of this figure was from off-

shore production —which was spared the worst of the storm—while

the other 400,000 b/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.

The

MOMR

also reported that refineries and energy infrastructure

— pipelines, port facilities, terminals — were impacted to a greater

degree as a result of the massive bands of rainfall that stretched

from Houston to Louisiana. Facilities near Corpus Christi were also

buffeted by high winds.

“At its peak, around 4.8m b/d of refining capacity was offline,”

the report noted. “The Colonial Pipeline, which ships up to 2.5m b/d

of petroleum products from Houston to the US north-east, was also

shut down.”

Fears related to shortfalls caused a spike in gasoline prices,

which jumped by 29 per cent from the previous week to $2.14/

gal, the highest level since mid-2015. However, the restart of

refineries and pipelines, together with the existing high stock

levels, helped bring gasoline futures prices to their previous lev-

els in a timely fashion, and the shortfall of US product exports

to nearby destinations has been accommodated by cargoes from

other regions.

According to the report, this latest stormhas

placed downward pressure on the oil market.

“Hurricane Harvey had a bearish impact

on NYMEXWTI values, which slipped five per

cent from the previous week to $45.96/b,” it

cited. “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 sup-

ply less vulnerable to storms. AlthoughUS

Gulf output has increased since Katrina,

its share in US crude production has

declined from 25 per cent in 2005 to

18 per cent in 2016, largely due to the

emergence of the US shale industry.”

A drop in demand from US refineries was another factor weigh-

ing on prices at a time when US crude stocks were at comfortable

levels of 80.4m b above the five-year average.

“Following Harvey, the US Department of Energy has made

some 5.3m b of crude available for sale from its Strategic Petroleum

Reserve (SPR),” the

MOMR

reported. “Last week’s inventory report

showed a draw of only 300,000 b in the SPR for the week ending

September 1. This compares to a 20.8mb release of SPR in the after-

math of Hurricane Katrina, as part of a coordinated 60m b offer by

IEA Members. OPEC had also expressed its commitment to fill any

supply shortfall resulting from the effects of Hurricane Katrina.”

Despite the damage and destruction, the impacts of Hurricane

Harvey on US economic growth and on US oil demand are forecast

to be relatively minor.

“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,” the report said. “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.”

While the report concluded that the US energy industry already

appeared to be on the road to recovery, the emergence of Hurricane

Irma and other storms raised the spectre that the 2017 hurricane

season could end up being a particularly destructive one, with poten-

tial implications for the oil market.

“In response, OPEC reiterates its commitment toworking together

with other stakeholders for the stability and security of the oil mar-

ket,” the report noted in closing. “This is essential for sustained eco-

nomic growth and the advancement of global prosperity.”

The impact of Hurricane Harvey

September

2017