Hurricane Harvey has been battering the areas surrounding Houston and Galveston, Texas, all weekend, and civilians are not the only ones being hurt by the flooding. Several oil refineries have been forced to shut down as a result of the heavy rain, sending prices at American gas pumps higher. Royal Dutch Shell has shut down its Deer Park refinery which produces a maximum of 340000 barrels per day. Exxon Mobil’s Baytown plant which can produce up to 560,000 barrels per day has also been closed. All told, approximately 22 percent of oil production in the Gulf of Mexico, approximately 379,000 barrels per day, has been halted. Texan refineries provide one quarter of U.S. crude oil refining capacity.
The storm is the most powerful and destructive hurricane to make landfall in Texas in over 50 years, causing not only closures of oil refineries, but closure of the port of Houston as well. Oil prices struggled in early Monday trade, with U.S. WTI futures down 0.40 percent to $47.68 per barrel and Brent crude futures heading higher to trade at $52.55 per barrel. The opposing price movements widened the gap between WTI and Brent to as high as $4.99 per barrel, the widest gap since September 2015.
The harshest hurricane in pre-Harvey years was Hurricane Katrina that hit predominantly around New Orleans, Louisiana. The U.S. economy struggled in the quarter immediately following Katrina, but rebounded fairly quickly due to regulating oil prices and investment in reconstruction efforts. Analysts are expecting Harvey to have similar negative economic ramifications in the United States.