There's Floodin' Down in Texas - The Impact of Harvey on Crude Oil Markets

It has been a tragic week for the Gulf Coast, with months if not years of cleanup and rebuilding ahead of the region. But already, Houston, Corpus Christi, Port Arthur/Beaumont, Lake Charles and other affected areas are coming back online through the hard work of resilient Texans and Louisianans as well as aid coming in from across the country. And even though the energy industry is also moving quickly to put Hurricane Harvey in the rearview mirror, the damage and disruption have been extensive. It is still much too early to fully understand what has happened and how long the recovery is going to take. But with information that we can piece together from public statements, data analysis and conversations with knowledgeable market participants, it is possible to start developing an assessment of Harvey’s effects. That’s what we will tackle in today’s blog.

The best way to understand how Harvey roiled U.S. crude oil is simply to follow the track of the storm.  We’ll use Figure 1 to help tell the story. Starting a few days prior to landfall (Circle 1), there was good information coming out of the National Weather Service (NWS) that this storm would be a big one.  Consequently, the energy industry went into high gear to prepare, evacuating offshore platforms, getting refineries and chemical plants ready for shutdown and curtailing ship traffic into and out of major port facilities. Crude oil imports were down 885 Mb/d the week before the hurricane hit, in part due to storm preparation. At the same time, pipeline operations teams in the Eagle Ford producing region, which seemed to be directly in Harvey’s path, started to go all out to empty local tankage to make room to store barrels locally if necessary. These barrels moved via pipeline, with much of it going over to Houston-area storage.  

Then it hit. Harvey slammed into the Gulf Coast just east of Corpus Christi at 11 p.m. on Friday, August 25 (Circle 2). While there had been a lot of notice and warnings before the hurricane came ashore, the intensity of the storm was a shock — Harvey was the strongest hurricane to impact Texas since 1961 and the first Category 4 storm in the U.S. since 2004 (Hurricane Charley). By the time Harvey made landfall, one-fifth of offshore oil and gas production in the Gulf of Mexico had been shut down (about 377 Mb/d of crude production and 750 MMcf/d of gas output), as had many refineries and chemical plants along the South Texas Gulf Coast, a hundred miles on either side of Corpus Christi. Although there was a lot of catastrophic or major damage to residential and commercial structures, the energy industry came through in relatively good shape.  However, with the port closed about 20 ships had to park far offshore of Corpus, holding a total of about 15 million barrels (MMbbl) of crude oil.

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