Hurricane Harvey may have poured out its record-breaking deluge 7,500km from here, but it will dominate fuel prices in the UK this month.
Harvey, which hit the US Gulf coast on August 25 and caused major flooding after turning into a tropical rain storm, fully or partially closed refineries with a total capacity of 5mn b/d, or 5.1% of global refining capacity.
With major ports, terminals and pipelines closed, even unscathed refineries are short of feedstocks. Some refineries may be able to restart soon, but at least 2mn b/d has suffered flooding, and full repairs and safety checks could take weeks or months. Until then, fuel markets usually supplied by the US Gulf, such as the US East Coast and Latin American markets, will be looking for alternative sources.
Europe is already a major supplier of gasoline to the Americas and the extra demand sent Eurobob gasoline barge prices in ARA up by 6.3% between August 25 and September 4. Diesel usually travels from the US Gulf to Europe, and the disruptions are not only curbing eastbound shipments but could also drive exports from Europe to Latin America. Gasoil prices in ARA were up by 5.3%, and UK retail prices are sure to follow.
Crude prices have been volatile, with Brent first initially by $1.50/bl in reaction to the lost feedstock demand in the US, then rising back again. Production cuts by Opec and non-Opec producers have taken 1.6mn b/d of oil out of the market since the start of the year and are starting to reduce global stocks, even though extra output from producers outside the deal, especially Nigeria and Libya, is diluting Opec’s efforts. OECD commercial stocks fell by 0.3% over the second quarter, compared with a more usual 1.5% seasonal rise. The surplus to the five-year average the metric by which Opec judges its success shrunk to 237mn bl at the end of June from 335mn bl in February. Brent futures averaged $51.87/bl in August against $49.15/bl in July.
But it will be the effects of Hurricane Harvey on refining capacity in the US Gulf that will drive fuel prices in the UK in the short term.