Harvey Recovery Well in Hand
- Fracking reduces impact of storm on Gulf of Mexico output
- Harvey focuses attention on national security
- Fewer refineries processing more crude oil heightens risks
- Natural gas prices respond minimally
The Matrix
The recovery from H. Harvey’s damage to the oil industry’s capital assets is well along. Press reports are replete with stories of refinery restarts and reopening of ancillary facilities. We expect full recovery to be uneven, but certainly larger installations are returning to service rapidly.
Last week, Powerhouse noted that U.S. production through fracking had reduced the impact of hurricanes on supply of both oil and natural gas. Harvey was an important test of that idea. One estimate put the reduction of shale production in Texas at 15 per cent. Output in the Eagle Ford shale fields near Corpus Christi was reportedly reduced by about 400 thousand barrels daily even before Harvey came on shore.
At the storm’s height, almost certainly most of the area’s 1.4 million barrels daily output was out of service. Recovery depends also on the condition of supporting structures. These include train tracking, operating ports and pipelines.
The larger issue brought into focus by Harvey was the potential impact of so much of the economy dependent on so narrow a geographical area. National security interests were heightened by the storm. Domestic fracking has clearly improved this situation upstream. U.S. imports have been cut by about a quarter over the past decade, despite an emerging export trade.
The imperatives of higher profits among refiners has had an impact too. The number of refineries in the United States has contracted sharply over the past few decades. And these facilities are being used far more intensely. Moreover, disruptions in the distribution system have become problematical. And damage to fractionating plants has threatened propane avails too.
Availability could be pressured by our burgeoning export trade. This influences crude oil and products, especially diesel fuel. All of this suggests that American security could benefit from greater redundancy should another major problem arise in the petroleum markets.
Supply/Demand Balances
Supply/demand data in the United States for the week ending August 25, 2017 were released by the Energy Information Administration.
Total commercial stocks of petroleum decreased 1.1 million barrels during the week ending August 25, 2017.
Builds were reported in stocks of distillates, residual fuel, propane, and other oils. Draws were reported in stocks of fuel ethanol and K-jet fuel. Gasoline stocks were unchanged from the previous report week.
Commercial crude oil supplies in the United States decreased to 457.8 million barrels, a draw of 5.4 million barrels.
Crude oil supplies decreased in four of the five PAD Districts. PAD District 1 (East Coast) crude oils stocks fell 0.7 million barrels, PADD 2 (Midwest) crude oil stocks declined 1.1 million barrels, PADD 3 (Gulf Coast) stocks decreased 4.2 million barrels, and PADD 4 (Rockies) stocks retreated 0.2 million barrels. PAD District 5 (West Coast) crude oil stocks grew 0.7 million barrels.
Cushing, Oklahoma inventories increased 0.7 million barrels from the previous report week at to 57.2 million barrels.
Domestic crude oil production increased 2,000 barrels daily to 9.530 million barrels per day from the previous report week.
Crude oil imports averaged 7.905 million barrels per day, a daily decrease of 885,000 barrels. Exports fell 34,000 barrels daily to 902,000 barrels per day.
Refineries used 96.6 per cent of capacity, an increase of 1.2 percentage points from the previous report week.
Crude oil inputs to refineries increased 264,000 barrels daily; there were 17.725 million barrels per day of crude oil run to facilities. Gross inputs, which include blending stocks, rose 216,000 barrels daily to 17.924 million barrels daily.
Total petroleum product inventories saw an increase of 4.3 million barrels from the previous report week.
Gasoline stocks were unchanged the previous report week; total stocks are 229.9 million barrels.
Demand for gasoline rose 217,000 barrels per day to 9.846 million barrels daily.
Total product demand increased 752,000 barrels daily to 21.430 million barrels per day.
Distillate fuel oil supply rose 700,000 barrels from the previous report week to 149.2 million barrels. National distillate demand was reported at 3.910 million barrels per day during the report week. This was a weekly decrease of 167,000 barrels daily.
Propane stocks rose 1.4 million barrels from the previous report week to 73.6 million barrels. Current demand is estimated at 1.214 million barrels per day, an increase of 272,000 barrels daily from the previous report week.
Natural Gas
According to the Energy Information Administration:
Weekly net injections are lower than the five-year average. Net injections into storage totaled 30 Bcf, compared with the five-year (2012–16) average net injection of 67 Bcf and last year’s net injections of 46 Bcf during the same week. This week’s smaller-than-average net injections primarily resulted from increased cooling demand for natural gas because of warmer temperatures in the South-Central region. Working gas stocks total 3,155 Bcf, which is 8 Bcf more than the five-year average and 239 Bcf less than last year at this time.
Natural gas prices did not react very strongly to Harvey. Only on August 31 did prices break above resistance at $3.00, finishing the week at $3.06. A move above $3.12 will be needed to have any confidence in a bullish natural gas market.
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