Reconstruction in the aftermath of Hurricane Harvey’s deadly gash through Texas could prove positive for the oil market in a few months as refineries such as the Dixie Oil Processors Superfund site in Friendswood, Tex., recommence operations according to a Goldman Sachs Group report.Justin Sullivan/Getty Images
Reconstruction in the aftermath of Hurricane Harvey's deadly gash through Texas could prove positive for the oil market in a few months, according to Goldman Sachs Group Inc.
More than half of the U.S. oil-refining capacity that was shut down because of Harvey's winds and rain will be back online by Thursday, Goldman analysts including Damien Courvalin said in a report on Tuesday. Dry poststorm weather should help minimize the loss of demand for gasoline and diesel, according to the bank.
Curtailed processing of natural gas liquids could over time prevent and possibly reverse the recovery in U.S. shale production, the analysts wrote in the note. Increased activity in the wake of the storm could boost oil demand in the long run as people rebuild houses and make new purchases.
"The potential for some U.S. onshore production curtailment and the likely demand recovery during the reconstruction suggest that the impact on the balance may become slightly positive after a few months," they said. "Such an outcome would ultimately be supportive of U.S. oil demand."
Goldman believes its assessment could be derailed if Hurricane Irma, a Category 4 storm near the Leeward Islands, makes a violent landing on the southern U.S. east coast because the region is sparse on oil infrastructure and the effect of the storm would mostly be felt on demand instead, according to the report.
Front-month gasoline futures spiked as much as 28 per cent in the days following Harvey's landfall on Aug. 25 near Rockport, Tex. West Texas intermediate crude futures fell as much as 4 per cent from the prelandfall settlement. On Tuesday, WTI settled at $48.66 (U.S.) a barrel, up $1.37; Gasoline futures settled at $1.6991 a gallon, down 4.88 cents.
Harvey aftermath
As refineries along the Gulf Coast restart, about two million barrels a day of capacity will remain offline by Thursday, down from a peak of 4.6 million, Goldman estimates. About 1.4 million could remain offline through mid-September.
While fast recovering, the refining outages heavily outweigh production losses, which are about 320,000 barrels a day between the Gulf of Mexico and south Texas's Eagle Ford shale formation, Goldman said. In total, the storm will have added about 40 million barrels to U.S. crude stockpiles in the month following Harvey's landfall, according to the bank. The storm will reduce gasoline supplies by 16 million and diesel by 13 million.
Producers have said that downstream plant availability is essential to a full return of output, Goldman said.
The potential for oil output staying offline longer could coincide with rising demand in the months ahead as reconstruction activity picks up, according to Goldman.