How would Harvey impact global oil prices, OPEC? (Exclusive)
Baku, Azerbaijan, Sep. 3
By Farhad Daneshvar – Trend:
Suzanne Minter of S&P Global Platts has turned down the significance of speculations suggesting that the Hurricane Harvey may lead to an increase in global crude pricing.
"A temporary reduction of US refining capacity due to the Hurricane Harvey does not imply a shortage of global energy," Suzanne Minter of S&P Global Platts told Trend.
"While I do not see any reason that reduced US refinery runs would incite OPEC to change its output, I do think that global barrels, currently entering the US, may redirect themselves to any other spare global refining capacity, be it in the Europe, the Middle East or Asia, so that those regions can create refined product to fulfill the potential shortfall of the US refined product to the globe. Therefore, there may be some slight uplift to global refined product pricing as barrels need to potentially ship themselves to more distant markets, but the amount of crude supply that creates refined barrels, has not been impacted by Harvey – therefore, this should not cause an increase in global crude pricing," said Suzanne Minter, director of client strategy and energy solutions at S&P Global Platts, a New York-based provider of information and benchmark prices for the commodities and energy markets.
On Friday, September 1, West Texas Intermediate (WTI) closed at a $47.29, a $5.46 discount to Brent in NW Europe, a $3.06 discount to the Dubai barrel in Singapore and $2.12 discount to the OPEC basket.
The key component of the opening of the spreads was not so much a price increase of the global barrel, but a softening of the WTI barrels. WTI softened with the landfall of Hurricane Harvey as the markets perceived US domestic barrels as "trapped" due to decreased refinery runs. In reality though, the physical driver between the WTI and global barrel spread may be the closing of the US ports.
Per the EIA, US Gulf Coast ports have averaged year to date imports of 4.0 MMB/d (million barrels per day) of crude and crude products.
In June, Gulf coast refiners imported 3.2 MMB/d of crude and 750,000 B/d of refined product – primarily finished gasoline.
Ports closed on Thursday August 24, effectively leaving 3.9 MMB/d of global crude and product looking for a new home. Of this displacement, it seems more than likely that the WTI spread widening was more of a "knee Jerk" reaction than a true physical necessity.
It seems more logical that global barrels should now begin to soften relative to WTI as the trading and producing communities grasp the fundamental reality that approximately 44 million global barrels may now be looking for a new home.
US ports closed on Thursday August 24 and while there are some partial reopening, full resumption of port activity is not expected until Tuesday.
While there has been partial restart of some refining capacity, as of Saturday, September 2, S&P Global Platts estimates that there is still between 2.3 and 3.2 MB/d of US refining capacity offline.
As waters recede across the US Gulf Coast region, refiners will assess any damage and determine when they can bring refineries back up to full runs.
As the ports reopen, the US refiners that are running should be able to source barrels of varying grades from global supply that they need to create the refined products required by US domestic markets.
Within the US , there may be some logistical disconnects as the US gulf coast supplies 60 percent of the Supply for the US Atlantic coast via Colonial pipeline, but if refining capacity in the US Gulf remains curtailed, it would seem that the US Atlantic coast may simply be forced to import more finished product from European refiners.
"Where it gets more interesting is when one considers that the US is a net exporter of 2.7 MMB/d of refined product – primarily to central and South America, through the US Gulf Coast. The longer the US refiners are unable to produce adequate product for export, the tighter the markets will get for central and South America, who will be looking for supply from other global refiners. It is key to realize that a temporary reduction of US refining capacity does not imply a shortage of global energy"
"Therefore, it seems that if, the US refiners are not able to bring refinery utilization back up to pre-Harvey levels relatively soon, there could be a significant shift in trade flows. OPEC members Saudi, Venezuela and Iraq are among the largest suppliers of imported barrels for the US refiners"
In June the 3 combined supplied 40 percent or 1.6 MMB of the 3.9 MMB/d imported into the Gulf Coast.
"While I do not see any reason that reduced US refinery runs would incite OPEC to change its output, I do think that global barrels, currently entering the US, may redirect themselves to any other spare global refining capacity, be it in Europe, the Middle East or Asia, so that those regions can create refined product to fulfill the potential shortfall of US refined product to the globe. Therefore, there may be some slight uplift to global refined product pricing as barrels need to potentially ship themselves to more distant markets, but the amount of crude supply that creates refined barrels, has not been impacted by Harvey – therefore, this should not cause an increase in global crude pricing"
The boom in US energy production since 2012 coupled with the upgrading of the US and global refineries and build out of export capacity has enabled the US to alter the historic flow patterns and energy distribution.
"While Hurricane Harvey may temporarily alter these new patterns, it seems that US upstream production has not been significantly affected and that once the refineries, crackers and terminal infrastructure can all turn itself back on in conjunction with one another in the US, the US will retain its position of the world’s top supplier of petroleum and natural gas hydrocarbons."