Monday, August 28, 2017

Goldman Sachs On Hurricane Harvey and the Oil & Gas Business

Amid the awful images and stories coming out of Houston there is also the commercial angle.
WTI $47.49 down  38 cents; Gasoline (RBOB) 1.7502, up 8.36 cents:

From ZeroHedge:

"Oil Markets Roiled": Goldman Calculates The Impact From Harvey's "Devastation"
Oil markets were roiled, sending gasoline prices surging on Monday after Tropical Storm Harvey wreaked havoc along the Gulf Coast over the weekend, crippling Houston and its port, and knocking out numerous refineries as well as some crude production. As noted on Sunday, gasoline prices hit two-year highs as massive floods caused by the storm forced refineries in the area to close. 
Meanwhile crude futures fell as the refinery shutdowns could reduce demand for US crude production. As a reminder, Texas is home to 5.6 million barrels per day (bpd) of refining capacity, and Louisiana has 3.3 million bpd. Over 2 million bpd of refining capacity was estimated to be offline as a result of the storm.

While the U.S. National Hurricane Center said Harvey was moving away from the coast, it was expected to linger close to the shore through Tuesday, and that floods would spread from Texas eastward to Louisiana.

As Reuters reports, US traders were seeking oil product cargoes from North Asia with transatlantic exports of motor fuel out of Europe expected to surge. “Global refining margins are going to stay very strong,” said Olivier Jakob, managing director of Petromatrix. “If (U.S.) refineries shut down for more than a week, Asia will need to run at a higher level, because there’s no spare capacity in Europe.”

At the same time, about 22%, or 379,000 bpd, of Gulf production was idled due to the storm as of Sunday afternoon, the U.S. Bureau of Safety and Environmental Enforcement said. There may also be around 300,000 bpd of onshore U.S. production shut in, trading sources said.

In a note released this morning, Goldman's Damien Courvalin calculated the estimate near-term impact from the "devastating" fallout from Harvey. As Courvalin writes, data available so far point to sizably larger refining than production disruptions: as of Sunday, August 27, nearly 3 mb/d of refinery capacity was offline (16.5% of the 18.2 mb/d US capacity) vs. c.1 mb/d of crude production (11% of 9.3 mb/d current production) and 2 Bcf/d of gas production (3% of 72 Bcf/d current production).

Should these levels of outages remain in place, and using past hurricanes as proxies for the impact on oil demand, Goldman estimates that the impact of Harvey on the US oil market would be to increase domestic crude availability by 1.4 mb/d while removing 615-785 kb/d of gasoline and 700 kb/d of distillate supplies. Larger refinery outages would increase these long crude and short product impacts.

Should the storm continue to head East towards Houston, as forecasts project, it risks creating further refinery outages with 850 kb/d of capacity in Houston not yet reported offline.

The hurricane is therefore likely to lead to further strengthening in product cracks given the loss in domestic refined product supply. The loss of USGC refining capacity will further support refinery margins for non-affected refiners to incentivize them to operate at higher utilization. The hurricane will however lead to a weakness in domestic crude prices given the lack of refining outlet. From a global oil supply-demand perspective, the storm is likely to lead to higher crude and product inventories over the next couple of months given the likely larger hit on US demand than supply.
http://www.zerohedge.com/sites/default/files/images/user5/imageroot/2017/08/12/gs%20harvey%201.jpg
The impact on production is far smaller, with 1 mb/d of crude production offline (11% of 9.3 mb/d current production) and 2 Bcf/d of gas production (3% of 72 Bcf/d current production). The flooding currently taking place is however leading to a greater loss of onshore supply (from the Eagle Ford) than historically has been the case. Gulf of Mexico production was instead spared by the path of the hurricane. Historically, onshore production has rebounded faster than offshore production and this would be consistent with producer commentary that loss of production is due to preventive shut-ins for now....MUCH MORE