Emergency oil reserves released after hurricane forces refinery shutdowns

WASHINGTON, 2 Sept 2017:

The US Department of Energy yesterday said it would lend additional oil of up to 3.5 million barrels from the nation’s emergency crude reserve to two energy companies along the Gulf Coast after hurricane Harvey shut about a quarter of the country’s refining industry.

The release came in addition to an exchange of one million barrels on Thursday.

The US Strategic Petroleum Reserve (SPR), a series of underground caverns in Louisiana and Texas operated by the Department of Energy, holds 678.9 million barrels of crude, enough to meet total US needs for 33 days.

The US also has a gasoline reserve, created after hurricane Sandy in 2012. The Northeast Gasoline Supply Reserve holds about one million barrels, stored in New York Harbor, Boston and Maine.

The International Energy Agency’s 29 member countries also store petroleum, which can be made available in case of a supply disruption. The Paris-based organisation advises Western governments on energy policy.

Releases from reserves can help avoid or moderate any price spikes by bolstering supply that would otherwise be interrupted.

The US president can call for an emergency drawdown from the SPR if the country is confronted with an economically threatening supply disruption. That was the case after Hurricane Katrina in 2005, which shuttered major US oil producers and refiners.

The SPR can also release oil in an exchange agreement, in which it lends crude to a company, which later replaces it and supplies the reserve with premium barrels as a form of interest.

Meanwhile, traders and ship brokers are rerouting millions or barrels of fuel to Latin America to compensate for broken supply lines after hurricane Harvey crippled the US Gulf of Mexico refining hub.

Buyers from Mexico, Brazil, Colombia, Venezuela, Argentina and elsewhere are turning to refineries in Europe, Asia and even the US East Coast in a rush to replace more than 2.5 million barrels per day (bpd) of fuel imports.

Roughly one quarter of US refining capacity, a total of some 4.4 million bpd, was shuttered over the past week as Harvey battered Texas and Louisiana, sending US gasoline prices to two-year highs above US$2 a gallon.

“Some of it’s going to come from Asia, most of it’s going to come from Europe and there’s bound to be a bit of belt-tightening or doing without,” said Paulo Nery, head of EMEA oil with industry monitor Genscape.

The closures initially led to a rush of US buying, with traders rerouting cargoes to prevent fuel shortages in the world’s largest energy market.

But ship brokers and analysts said some of those cargoes were set to change destination yet again as Latin America competed for crucial imports.

“Now it is the Latin Americans which are in the market,” one ship broker said, adding that he had seen many diversions since the storm.

Desperate buyers in the region were eyeing cargoes sitting of the coast of Venezuela, but were looking nearly everywhere to meet their enormous fuel import needs, sources said.

Latin American demand for imports had already risen this year ahead of Harvey because a number of refinery outages had reduced domestic supply in countries such as Mexico and Venezuela.

“Latin America is going to need those cargoes more than anyone else,” said Robert Campbell, head of global oil products markets for Energy Aspects. There is little fuel in storage across Latin America, so many countries will need to buy urgently, he added.

In June, Latin America took in 850,000 bpd of diesel and 950,000 bpd of gasoline, according to Energy Aspects, with the bulk of it coming from the US Gulf.

Genscape data showed loadings for Latin America from the US Gulf this week sliding dramatically to just 300,000 bpd, underscoring the need for replacements.

Already, a cargo of Baltic-produced diesel aboard the tanker STI Manhattan had diverted from France to Brazil – a rare destination, Nery said.

Tanker tracking showed the Flagship Ivy sailing for Brazil with fuel loaded in New Jersey, while the Navig8 Excellence was also provisionally booked to carry gasoline out of the US Atlantic Coast. Mexico’s PMI was also seeking a ship to carry gasoline from Canada.

Other fixtures showed Valero booking European gasoline to sail to Peru and Mercuria fixing a cargo to Chile.

More diversions were imminent, sources said, while traders in West Africa said multiple cargoes first booked for the region were sailing for the Americas instead – prompting worries over shortages and price rises in that region.

Analysts said supply lines would be disrupted for weeks and possibly months as global markets grappled with the damage inflicted by Harvey on the world’s largest fuel supply hub.

“Price signals are seeing the gasoline barrels currently redistributed to the markets which need them most – a bit like a ripple effect,” said Andrew Wilson, head of energy research at ship brokers BRS.

– Reuters

Leave a Reply