1. Business
August 25, 2017

Hurricane Harvey: What does the worst storm to hit the US in 12 years mean for oil and gas prices?

Texas is bracing itself for Hurricane Harvey, which could be the worst storm to hit the US mainland for almost 12 years. But what will the category three storm mean for the oil and gas industry in the region?

Energy companies including Royal Dutch Shell, Anadarko Petroleum and ExxonMobil have already evacuated employees from offshore platforms in the Gulf of Mexico, home to about 17 percent of the nation’s crude oil output.

Meanwhile Texan oil refineries are shutting down in preparation for the imminent disruption caused by flooding and power cuts. The US National Hurricane Center said:

A storm surge warning means there is a danger of life-threatening inundation, from rising water moving inland from the coastline, during the next 36 hours.

More than 45 percent of the nation’s oil refining capacity relies on the Gulf Coast, with a third lying between Corpus Christi, Texas and Lake Charles, Louisiana.

Rising oil and gas prices

Oil prices rose 0.8 percent to a three-week high as the hurricane approached Texas.

Andy Lipow of Lipow Oil Associates, a Houston-based consultancy, said:

The biggest impact of this storm will be a significant reduction of crude oil imports into the Texas Gulf Coast.

West Texas Intermediate, the US benchmark, rose to $47.79 a barrel, while Brent crude was up to $52.45 from the previous close.

Refineries processing less crude could also reduce the production of gasoline and diesel fuel, according to some analysts.

Lipow told the Financial Times that although he did not expect widespread shortages at fuel stations, Hurricane Harvey would raise national gasoline prices by five to 10 cents per gallon.

Gasoline futures contracts have risen more than 3.5 percent over the past two days to $1.65 a gallon.

What does Hurricane Harvey mean for residents?

Tens of thousands of residents in low-lying areas on the Texas coast have been told to evacuate their homes.

Joe McComb, mayor of coastal town Corpus Christi, said:

I hope people will listen to forecasters when they say ‘beware of flash floods. Flash floods can come quickly, and they can be deadly.”

Given the forecasts of strong winds, heavy flooding and torrential rains Texas governor Greg Abbott declared a “state of disaster.”

Preemptively declaring a state of disaster will allow Texas to quickly deploy resources for the emergency response effort in anticipation of the storm’s hazardous conditions.

In October 2005, Hurricane Wilma struck the coast of Florida, leaving 87 people dead.