Largest drop since 2008
Hurricane Harvey caused the largest drop in Gulf Coast refinery production since 2008, according to a note released by the EIA today.
American refineries have been running at or near record highs since April, reaching record total inputs of 17,924 MBBLPD in the week of August 25. However, Hurricane Harvey caused a significant amount of disruption, forcing numerous refineries to shut down operations.
Total input to Gulf Coast refineries dropped by 3.2 MMBPD in a single week, a decline of 34%. Utilization rates dropped from 96% to 63% among Gulf Coast refineries. The last time Gulf Coast refineries shut down that amount of capacity was in 2008, when Hurricanes Ike and Gustav hit Louisiana and Texas. Those hurricanes caused inputs to Gulf refineries to decrease by nearly 3.9 MMBPD over several weeks, a drop of over 50%. Hurricane Katrina caused even greater shutdowns in 2005, when inputs dropped by over 4.4 MMBPD.
Gasoline prices jumped by ~30 cents
The disruption of refining activities was compounded by pipeline difficulties. The Colonial Pipeline system, which connects 29 refineries and 267 distribution terminals and carries up to 2.5 MMBPD of products, typically operates at or near capacity. The direct effects of Harvey and the decreased supply of gasoline combined to force the Colonial line to curtail operations and ship products intermittently. Operations were eventually resumed at reduced flow rates on September 6.
These disruptions caused gasoline prices to spike. According to the EIA, average gas prices in the U.S. jumped by $0.28/gal from August 28 to September 4, with higher increases seen in local regions. Prices in the Gulf Coast region rose by $0.35/gal, while prices in Texas and Houston rose by $0.40/gal and $0.35/gal, respectively. All of these increases were the largest single-week jumps since Hurricane Katrina in 2005.
The big unknown
A big unknown currently affecting oil markets regards refinery recoveries.
If 3.2 MMBPD have come offline, how long will it take these refineries to come back online? In both 2005 and 2008, recovery took several weeks. After Hurricanes Ike and Gustav, refineries took four weeks to recover 3.3 MMBPD. Additional capacity came online over the next weeks, with refining activity reaching pre-storm levels ten weeks after the initial shutdown.
After Hurricane Katrina it took U.S. Gulf coast refineries significantly longer to recover. Over the first nine weeks roughly 3.5 MMBPD of activity returned to operations, but pre-hurricane levels were not reached until months later. Gulf refineries would average nearly 8 MMBPD of activity during the month of August before Katrina, they would not produce at these levels again until July the next year.
