Hurricane Harvey made landfall in Texas on August 25 and spent the next week ravaging the U.S. Gulf Coast. The nation’s oil industry, which has a de facto capitol in Houston, felt the wrath of the storm as much as any other. Refinery shutdowns across the Texas Gulf Coast significantly impaired crude demand for the entire country.
The ongoing outages have had widespread impacts, which have not been confined to Gulf Coast markets. Refiners in the Mid-Continent and East Coast have ramped up run rates to take advantage of a lack of demand outlets and subsequently wide refinery margins. Several refineries have also reported delays in their maintenance schedule following the unforeseen circumstances, which could lead to continued low crude demand in the spring maintenance season.
Slowly, but Surely: Refinery Restarts Continue Along the Texas Gulf Coast
Following the Path of the Storm
Run Now, Rest Later: Strong Refinery Margins Lead to Deferred Maintenance
Although infrastructure damage from Harvey was mostly confined to Texas, refinery markets beyond the Gulf Coast certainly felt the effects of the storm. More than 20 percent of total U.S. refining capacity was shut in the wake of Harvey, according to Genscape. The drastic, unexpected fallout in demand put pressure on unaffected refineries to partially fill the void, while also providing opportunities to profit.
The sudden loss of crude demand and simultaneous loss of refined products supply caused their respective prices to diverge. NYMEX Light Sweet Crude (WTI) front month prices fell $2.45/bbl between August 23-30. Meanwhile, NYMEX gasoline (RBOB) and diesel (ULSD) front month prices rose $11.16/bbl and $2.07/bbl, respectively. The directional difference in price movements led to the strongest refinery margins in more than four years.
The 321 crack spread, a common metric for the profitability of refining crude into gasoline and diesel, jumped $17.63/bbl to $37.29/bbl between August 23-31, the widest daily close since March 8, 2013. The spread has since narrowed as Gulf Coast refineries have returned to service and assuaged demand concerns. On September 19, the spread closed at $21.13/bbl, still $4.43/bbl above the pre-storm 2017 average and $7.33/bbl above the September 2016 average.
Strong refinery margins have incentivized refiners in the Mid-Continent and East Coast to run their facilities full steam ahead, according to several reports. In fact, several refiners in the Mid-Continent have opted to postpone planned maintenance in order to take advantage of the temporarily wide spread. Additionally, many skilled labor crews that would typically complete the maintenance are occupied with refinery restart work in the Gulf Coast.
The ongoing multi-unit turnaround at Citgo’s 167,000 bpd Lemont, IL, refinery was delayed approximately one week, while Exxon has moved planned work at a coker and catalytic reformer at their 238,600 bpd Joliet, IL, refinery from September to mid-October, sources reported. Also in the region, Marathon moved work back one to two weeks on an alkylation unit at their 212,000 bpd Catlettsburg, KY, refinery and delayed the shutdown of the alkylation unit at their Robinson, IL, refinery from mid-September to early October.
Certain Gulf Coast refineries have also delayed fall turnaround due to the unplanned outages. Maintenance at Motiva’s 600,000 bpd Port Arthur refinery (the largest refinery in the country) and Phillips 66’s 247,000 bpd Sweeny, TX, refinery has been rescheduled for 2018, according to IndustryWeek.