Cheap Oil, Costly Fuel Are Harvey's Windfall for Market

Cheap Oil, Costly Fuel Are Harvey's Windfall for Market
Cheap Oil, Costly Fuel Are Harvey's Windfall for Market

The shutdown of almost a quarter of US crude refining capacity in the wake of Hurricane Harvey is presenting a rare opportunity for fuel traders in Asia. A spike in American gasoline prices as the storm cuts off supplies is drawing shipments from as far away as Singapore. The disruptions are also weighing on global crude futures, helping drive up processing profits thousands of miles away from Harvey’s trail of destruction on the US Gulf Coast, Bloomberg reported.

Returns from making oil products in Asia have soared to the highest level in more than two years. Even companies that are not transporting fuel west are benefiting, according to Indian Oil Corp., the nation’s top refiner. Traders have hired vessels to ferry at least 105,000 tons of processed products from Singapore to America next month, and are seeking to charter more.

Tankers have been booked to transport gasoline from Europe to the US, and the fuel is now set to be shipped over even longer distances as the premium of American prices soar relative to those in Asia, the world’s biggest oil market.

Additionally, Indian Oil says demand is strong enough for refiners that do not export to stick to domestic markets and enjoy cheaper feedstock and higher fuel prices.

“Harvey is creating a dual benefit for Asian refiners,” said Arun Kumar Sharma, finance director at Indian Oil. “The shutdown of US refineries is pulling down crude prices and pushing up prices of petroleum products. This will have a double-impact on refinery margins, especially in Asia.”

After blasting along the Texas coast as a hurricane last week, Harvey has made landfall a second time in Louisiana as a Tropical Storm, drenching the states in rain and hampering energy infrastructure. It has reduced US fuel-making capacity by about 4.25 million barrels a day to the lowest since 2010. A combined 23% of American capacity are at least partially offline.

Gasoline in New York has jumped above $2 a gallon for the first time since 2015. Soaring US gasoline prices mean it is now profitable to send the fuel from Singapore to the US.

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