The largest oil refinery in the US is shutting down because of flooding from Harvey

The largest oil refinery in the US is shutting down as Harvey continues to ravage the southeastern part of Texas.

The Motiva Port Arthur refinery, with a capacity of 603,000 barrels per day, began shutting down Wednesday around 5 a.m. CT “in response to increasing local flood conditions,” according to the Wall Street Journal. Motiva is owned by Saudi Arabia’s state oil behemoth Saudi Aramco.

The refinery began winding down production by at least 60% on Tuesday, according to the Houston Chronicle.

18 refineries have been closed or partially closed in Texas as of Wednesday morning, including Port Arthur, according to analysts at BMI Research.

“The largest impact to energy markets is severe flooding, which has resulted in the closure or part-closure of nearly 25% of the United States’ refinery capacity,” the analysts at BMI Research wrote in a note to clients.

“As Harvey heads inland once again, we note a number of refineries in its current trajectory will be under threat,” they added. “This could close up to another 824,000 barrels per day (b/d) of capacity, giving an additional lift to fuel prices, while further depressing crude.”

Harvey has had a greater impact on refining than on production, and this is why oil prices have been trickling downwards, going in the opposite direction of gasoline prices, according to a research team at LPL Financial.

Oil and gasoline

Oil prices usually tick up when severe weather hits areas with heavy concentrations of oil businesses. However, prices have been trickling downwards over the past few days. WTI crude oil, the US benchmark, was down by 1.1% at $US45.94 a barrel at 10:44 a.m. ET.

US gasoline futures, on the other hand, earlier shot up to their highest level since July 2015. Although they have since pulled back slightly, they have been in an upwards trajectory since Harvey hit.

The team at LPL Financial explained that discrepancy in a recent report (emphasis ours):

As refineries have been shut down (due to damage, the inability for workers to reach them, or the inability to get gasoline out of them) a lack of demand for oil has been created. In turn, this has increased the amount of oil in storage waiting to be refined, thereby depressing prices.
On the other side, refiners’ inability to produce and distribute gasoline and other refined products is weighing on supply and driving those prices higher. The chart below shows the difference between the price of oil and the price of gas, which generally tend to move together, but at times — and especially now — have diverged considerably, and the impact of refinery shutdowns on the price of gasoline.”

Get the latest Oil WTI price here.