Gasoline spiked to a more-than-two-year high on Thursday after a report that the largest U.S. refinery could remain offline for up to two weeks due to impacts from Tropical Depression Harvey.
Meanwhile, U.S. crude oil prices were on track to post the steepest monthly losses in more than a year as concerns spread over falling demand in the world’s top oil-consuming country after storm Harvey knocked out almost a quarter of its refineries.
U.S. gasoline futures were up nearly 13 percent at $2.124 per gallon by 11:07 a.m. ET, near the highest level since June, 2015. The contract was on track for its biggest one-day gain since March 1, 2016.
Motiva Enterprises’ Port Arthur, Texas refinery, the nation’s largest, may be shut as long as two weeks for assessment of the plant and repair of any damage, sources familiar with plant operations said on Thursday.
“That two weeks could become four. They’re thinking Motiva and they’re thinking everyone else in Beaumont, Port Arthur,” said Andrew Lipow of Lipow Oil Associates.
Gasoline prices were buoyed earlier in the day by fears of a fuel shortage just days ahead of the Labor Day weekend that typically sees a surge in driving. But prices rallied in the oil products markets, with U.S. gasoline futures hitting a more than two-year high above $2 a gallon.
Harvey, which brought record flooding to the U.S. oil heartland of Texas and killed at least 35 people, has paralyzed at least 4.4 million barrels per day (bpd) of refining capacity, according to company reports and Reuters estimates.
Traders from Europe to Asia were scrambling to fix fuel cargoes to the United States. Goldman Sachs said it could take several months to restore all production.
“While no two natural disasters are similar, the precedent of Rita-Katrina would suggest that 10 percent of the … currently offline capacity could remain unavailable for several months,” the investment bank said.
Crude markets recovered after sharp losses in the previous session. The closure of so many U.S. refineries has resulted in a slump in demand for the most important feedstock for the petroleum industry.
U.S. West Texas Intermediate (WTI) crude futures were up $1.17, or 2.6 percent, at $47.13 per barrel. The contract ended Wednesday’s session down 1 percent.
International Brent crude rose $1.16, or 2.3 percent, to $52.02 a barrel. The contract fell by over 2 percent during the previous session.
Analysts said that the heavy WTI discount with Brent was a result of shut in U.S. crude supplies due to pipeline and refinery closures.
And although Harvey keeps getting weaker, meteorologists say more floods are expected. The National Hurricane Center (NHC) said in its latest update that flooding and heavy rain continued in eastern Texas and western Louisiana.
U.S. crude and product stocks, typically watched closely by oil investors as they reflect market balancing, were largely ignored this week.
U.S. commercial crude stocks fell by 5.39 million barrels last week to 457.77 million barrels, the U.S. Energy Information Administration said on Wednesday.
That’s down 14.5 percent from record levels reached in March.
At the same time, the amount of crude entered into refineries reached a record high of 17.73 million bpd, the data showed, a number that is expected to have dropped dramatically this week due to infrastructure closures.
Analysts at JBC Energy said that figure could slip to as low as 15-16 million bpd.
— CNBC’s Tom DiChristopher and Patti Domm contributed to this report.