WASHINGTON: Oil experts breathed a guarded sigh of relief yesterday and crude prices fell sharply as Hurricane Rita’s path shifted away from Houston, the heart of the US refining industry.
Rita, packing 135mph winds, was heading for landfall late yesterday or early today at the Texas-Louisiana border, east of Houston, said the US National Hurricane Center. However, it remained unclear where the storm will actually strike the coast.
“Prior to its current path, we were looking at the worst case scenario for the industry with the hurricane striking Houston,” said John Kilduff, senior vice president for energy risk management at Fimat USA. The Houston area accounts for more than 13% of total US refining capacity.
“It saves us from the worst. But this will still be pretty bad,” he added.
However, Rita remains a large storm that will blanket the upper Texas coast with hurricane-force winds for about 16 hours, according to state emergency officials.
The entire city of Port Arthur, Texas, was expected to be flooded with a storm surge of up to 22ft. Port Arthur is home to several refineries including Motiva’s 285,000bpd plant, Total Petroleum’s 233,500bpd refinery and Valero’s 250,000bpd unit.
Fifteen Texas and Louisiana refineries shut down ahead of Rita, in addition to the four that remained closed since Hurricane Katrina swept through the Gulf of Mexico nearly a month ago. In total, nearly 30% of US refining capacity was halted.
The US market has lost 2.2mn bpd in gasoline production and another 1.2mn bpd in distillate fuel output from the closing of the refineries.
“The total amount of refinery capacity shut down amounts to nearly 5mn bpd,” EIA, the Energy Department’s analytical arm, said in its latest hurricane update.
About 600,000bpd in jet fuel production has also been lost from refineries that shut because of Rita, according to EIA.
US Energy Secretary Sam Bodman on Thursday warned that local fuel supply disruptions will occur due to Rita.
“There will be disruptions,” Bodman told reporters in a telephone briefing. “How long they will last, I simply don’t know.”
Bodman said gasoline imports would be needed over the next one to three weeks to help replace lost supply.
Retail gasoline prices have already started rising and pump costs are expected to go much higher if Rita causes a major disruption in petroleum supplies.
“I think (Rita) could take gasoline to $5 a gallon,” Philip Verleger, an energy economist and senior fellow at the Institute for International Economics, said Friday on CNBC.
However, Shell Oil said it aims to bring its 340,000bpd refinery in Deer Park, Texas, back on line tomorrow. Marathon Oil also said it hopes to restart its 72,000bpd refinery in Texas City tomorrow.
Analysts said it could take a week after Rita hits before all the refineries could return to normal operations.
“This is the most disruptive event in the US oil industry at least in my lifetime,” said Joseph Arsenio, analyst at Arsenio Capital Management. “This will be felt for at least a year or two.”
“I don’t expect there will be any progress until next Wednesday simply because it takes time to get back into the area,” he added.
The first thing oil traders will want to know after the storm is the status of the refineries, analysts said.
London’s International Petroleum Exchange said it would open electronic trading in its Brent crude oil and gas oil futures contracts late today to give traders an opportunity to react to Rita.
The International Energy Agency planned to meet today to assess Rita’s impact and decide if it should order the release of gasoline reserves. After Katrina, IEA members – including the US – released about 60mn barrels of crude oil and gasoline.
The Bush administration said it was prepared to loan crude oil from the government’s emergency stockpile to refineries that cannot receive tanker shipments after Rita.
The Energy Department loaned a total of 13.2mn barrels of crude oil from the Strategic Petroleum Reserve after Katrina hit Louisiana and Mississippi three weeks ago.
The government has other options to help keep oil flowing, including relaxing anti-pollution regulations for gasoline and suspending the Jones Act so foreign vessels can transport crude oil and gasoline between
US ports. – Agencies |
