Ike leaves refineries relatively unscathed

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As rescue and cleanup work continues along the Gulf Coast to clear the remnants of Hurricane Ike, the price of a barrel of crude oil decreased significantly today as the storm did not damage refineries as significantly as anticipated.

According to Bloomberg.com, crude oil traded as low as $94.13 today, a drop of more than $7 a barrel since Friday. Bloomberg.com said that most refiners in the area, such as Valero Energy Corp., reported minimal damage from the storm. However, more extensive assessments of the local plants still need to be conducted before a full restart can be completed, which could take up to 10 days.

“Supplies are going to be tight from now until most likely the end of September,” Denton Cinquegrana, markets editor for the Oil Price Information Service (OPIS), told FleetOwner. “Getting the refineries back to full capacity isn’t as simple as turning on a light switch.”

“As of 8:00 pm EDT (7:00 pm CDT), September 13, the Department of Energy reported that there are 15 refineries in Texas and Louisiana that are shut down ahead of Hurricane Ike,” the Energy Information Administration (EIA) said. “These 15 refineries have a total capacity of nearly 3.9 million barrels per day (22% of U.S. operable capacity), and represent over 1.4 million barrels per day of gasoline output (about 16% of U.S. gasoline demand in September) and nearly 1.0 million barrels per day of distillate fuel output (about 24% of U.S. demand in September), based on recent historical data. At this time, it is unclear how long these refineries will remain shut down.

“So far, since refineries first shut down before Hurricane Gustav, over 24 million barrels of products have not been produced, including over 11 million barrels of gasoline and 8 million barrels of distillate fuel,” EIA continued. “This does not even include reduced production from refineries that have reduced runs at various times during Hurricanes Gustav or Ike. As of late September 13, nine refineries were running at a reduced rate…Until there is better information on how long facilities in the Gulf of Mexico region will be down, it is unclear what impact Hurricane Ike will ultimately have on prices.”

“Hurricanes do destroy demand for crude, so I have no problem with the weakness in crude,” said OPIS co-founder Tom Kloza on his Speaking of Oil blog. “But I think the trading community has underestimated the period of time that Gustav and Ike-inspired downtime will haunt U.S. supply. Refineries can’t operate without the reliable support of local utilities and my sources believe Texas refinery processing capability problems will stretch into late September.”

Cinquegrana added that some of the refineries are on the way to restarting, but some will take a few more extra days to ensure safety. He added that he believes crude oil should remain at or around its current level for the remainder of the year “unless something catastrophic happens.”

Locally, the Texas Dept. of Transportation is urging drivers not to travel to Houston and Beaumont, as there are massive traffic backups in the area and few service stations have fuel or electricity. In addition, a 25-mile leg of Highway 87 is badly damaged and I-45 and I-10 are currently experiencing heavy traffic, Texas Dept. of Transportation spokesman Chris Lippincott was quoted as saying in the Dallas Morning News.

“It’s difficult to see parts of our state in this condition, but it is the current reality and we’re working through a recovery operation that is massive in scale and complexity,” said Texas Gov. Rick Perry. “People in the area need to understand that our team is working ‘round the clock to restore services while people outside the area need to stay away until we have reached an acceptable level of safety.”

The Port of Houston Authority (PHA) said its facilities have experienced “limited negative impact” from Hurricane Ike, although it is currently without electricity and will not receive trucks for dropoffs or delivery today.
“Initial assessments of the PHA terminals revealed minimal wind damage - displaced fences, containers, and electrical lines,” the port said in a statement. “PHA also experienced anticipated minimal water intrusion resulting in some standing water. Overall, port authority facilities and its other assets are in good shape, considering the magnitude and strength of the hurricane. All PHA wind-blown debris has been contained on the PHA property. The vast majority of the cargo is safe, secure and undamaged.”

John Esparza, president & CEO of the Texas Motor Transportation Assn., told FleetOwner that roads are currently being cleaned of debris, although some areas of the state are still passable. The most recent information on road conditions is available by calling the Texas Dept. of Transportation at 1-800-452-9292.