Gulf Refinery Recovery Could Take Weeks; Fuel Prices Rise

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Now, the Houston Shipping Channel is closed, tankers are not moving, and oil that is being drilled is not able to move into refineries.

Western Canadian Select strengthened on Thursday, with the discount to futures shrinking 50 cents to $11.25 a barrel, data compiled by Bloomberg show.

On Aug. 15 the front-month Brent future was at a premium of 17 cents to the second-month and 18 cents to the third.

The analyst noted propane prices barely edged higher.

Backwardation, when the front-month contract is more expensive than subsequent months, makes it uneconomical to store crude, resulting in the drawdown of inventories.

The U.S. Environmental Protection Agency, meanwhile, granted a waiver on low-volatility conventional gasoline requirements to 12 more states to boost gasoline supply in areas hit by fuel shortages.

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The Organization of the Petroleum Exporting Countries is frustrated that the storm has not pushed global prices higher, with one OPEC delegate telling Reuters, "It seems no event will move the oil price up much".

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Exxon lost almost 100,000 bpd of production, and Shell has so far lost more than 700,000 bpd.

The Energy Department is releasing hundreds of thousands of barrels of reserve oil to help ease the shortage in the wake of Hurricane Harvey.

Analysts said that the heavy WTI discount with Brent was a result of shut in USA crude supplies due to pipeline and refinery closures.

Falling crude prices have weighed on USA drilling activity over recent weeks, as data showed the number of US oil rigs was unchanged from the prior week.

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The immediate impact has been to drive USA gasoline prices sharply higher, prompting cargoes to move from regions as far away as Asia to the United States. "Anybody that's going to go out and try to take advantage of a disaster victim ought to expect the law enforcement to come down [on] them with a hammer", said homeland security adviser Tom Bossert.

USA crude's discount to London's Brent futures grew Tuesday, touching the contract's widest level of $5.90 a barrel.

Unless there is a sharp rally in United States trading, monthly losses are liable to the sharpest for over 12 months with a decline of close to 8%. At the same time, WTI crude oil is trading at just $46.14/bbl, down 2.5 percent from a week ago.

Global benchmark Brent crude traded at $51.22, up 36 cents from the previous session, when the contract fell on Wednesday. The entire globe will depend more on crude oil, natural gas, gasoline, diesel and a slew of other refined products and petrochemical derivatives from the U.S. Gulf Coast.

This crude will now either have to be put in storage, or find other buyers.

The Explorer Pipeline - which brings refined products from Texas to IL - has been closed since Tuesday but is expected to reopen on Friday. "The value of crude is lower because it's stuck". Colonial has cited a lack of supply because of the Texas-area refinery outages.

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