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HOUSTON/NEW YORK: The US Energy Department will release 500,000 barrels of crude oil from the Strategic Petroleum Reserve in response to Tropical Storm Harvey, the first emergency release since 2012, a spokeswoman said in a statement on Thursday.
The release will be delivered to the Phillips 66 refinery in Lake Charles, Louisiana, according to the statement. That refinery has not been affected by the storm, which has hammered the Gulf Coast for several days.
The release includes 200,000 barrels of sweet crude and 300,000 barrels of sour crude oil, according to the statement. The reserve, established in the 1970s, currently contains 679 million barrels of oil.
Harvey’s impact on the energy industry has spread beyond flooding US refiners as fuel pipelines were also shut, threatening to squeeze national supply and roil global fuel markets as US retail fuel prices continue to climb.
The storm, which lashed Louisiana with rain on Thursday, has pummeled the US Gulf Coast, immersing Houston, Texas and the surrounding area in several feet of water and forcing the closure of about a quarter of US refining capacity.
Benchmark US gasoline prices and margins surged anew on Thursday. The jump came after the Colonial Pipeline, the biggest US fuel system, said it would shut its main lines to the Northeast by Thursday amid outages at pumping points and lack of supply from refiners.
That artery can carry 3 million barrels of gasoline and other products daily.
At least two East Coast refineries have run out of gasoline for immediate delivery as they scrambled to fill barges for markets normally supplied by the Gulf Coast, two refinery sources said.
Others were seen running at higher rates to boost profitability by filling shortages.
“This is going to be the worst thing the US has seen in decades from an energy standpoint,” said an East Coast market source, who declined to be named as he was not authorized to speak to the press.
Concerns over fuel shortages ahead of the US Labor Day extended weekend were mounting, said analysts at JBC Energy.
US gasoline futures topped $2 per gallon for the first time since 2015, with benchmark prices up more than 20 percent since the Aug. 23 close, just before the storm began.
US crude oil prices were yesterday on track for their steepest monthly losses in more than a year.
Average US retail fuel prices have surged by more than a dime per gallon from a week ago, the AAA said early on Thursday.
The Gulf makes up nearly half of total refining capacity in the US, the world’s largest net exporter of refined petroleum products, and the storm is set to impact global flows.
About 4.4 million barrels of US refining capacity have been shut by Harvey, including the nation’s largest refiner, Motiva Port Arthur, which can process more than 600,000 barrels a day. The total shut-in is about 24 percent of US refining capacity, almost equal to Japan’s daily consumption.
Traders in Europe scrambled to reroute cargoes to the US and Latin America to fill the gap left by refining and shipping closures, but supplies may not arrive fast enough to avert a crunch.
“Sourcing additional barrels from Europe is a potential solution, but an increased level of uncertainty is introduced surrounding the timeliness of delivery given the logistics of travel time and securing tankers,” said Michael Tran, director of global energy strategy at RBC Capital Markets.
— Reuters