EIA: Timeline uncertain for return to pre-storm US production, refining

Sept. 18, 2017
Hurricane Harvey has tremendously disrupted the US crude oil and product markets in recent weeks. At the peak of disruption, an estimated 3.9 million b/d of US Gulf Coast refining capacity was taken offline, and oil transportation capacity in the region was restricted.

Hurricane Harvey has tremendously disrupted the US crude oil and product markets in recent weeks. At the peak of disruption, an estimated 3.9 million b/d of US Gulf Coast refining capacity was taken offline, and oil transportation capacity in the region was restricted.

Continuing uncertainty exists regarding the timeline for the return to normal operations for a broad range of US upstream production, refining, pipeline, and terminal and distribution systems, the US Energy Information Administration said in its latest Short-Term Energy Outlook (STEO).

The agency also noted that the severity and duration of these outages create additional uncertainty about the path of energy prices in the coming weeks and months.

This month's EIA forecast does not include any projected effects from Hurricane Irma, as at this writing, it was too early to assess the extent to which the storm would cause disruptions to the US energy system.

Refining

Refining declined following Hurricane Harvey. Based on EIA's Weekly Petroleum Status Report, US gross refinery runs averaged 14.8 million b/d the week ended Sept. 1, down 3.1 million b/d from the previous week.

EIA forecasts refinery runs to average 15.3 million b/d in September, down from an estimated average of 17.1 million b/d in August. Refinery runs are forecast to increase to 15.9 million b/d in October. These forecasts are 1.5 million b/d and 100,000 b/d lower, respectively than projected in the August STEO.

However, the reductions in refinery production of products will be offset by a decline in product net exports, either from a decrease in exports or an increase in imports. EIA expects net product exports to average 1.1 million b/d in September, down from an average of 2.9 million b/d during the first 8 months of 2017.

EIA forecasts the average US regular gasoline retail price to be $2.61/gal in September and be $2.40/gal in October, which are 25¢/gal and 10¢/gal higher, respectively, than projected in the August STEO.

Crude oil production

US crude oil production is estimated to have averaged 9.2 million b/d in August, down 40,000 b/d from the July average. Crude oil production in the Gulf of Mexico fell to a monthly average of 1.6 million b/d in August, down 70,000 b/d from the July level, due to disruptions. At this writing, many oil production platforms in the Gulf of Mexico had returned to operations.

Producers also curtailed production in the Eagle Ford region of South Texas. However, production declines there were offset by growth in other areas of the Lower 48 states onshore region.

EIA forecasts total US crude oil production to average 9.3 million b/d for all of 2017 and 9.8 million b/d in 2018, which could mark the highest annual averaged production in US history.

Crude prices

Lower refinery demand for crude oil in the Gulf Coast region more than offset reductions in crude oil production as a result of the storm, which contributed to lower West Texas Intermediate prices while simultaneously contributing to higher product prices.

WTI front-month futures prices from Aug. 28-31, the height of hurricane-related disruptions, were about $2/bbl lower than during the average price during the first 19 trading days of the month.

Despite lower WTI prices, Brent prices were supported by global supply reductions. Libya's crude oil production declined 150,000 b/d from July to August because of oil field closures. August oil production in Norway and the UK-the two main countries for North Sea oil production-fell a combined 50,000 b/d from the July level, which led to the lowest amount of Brent crude oil scheduled for loading for the month of August since 2014. In addition, crude oil exports from the Organization of Petroleum Exporting Countries declined 1.3 million b/d from July to August.

Because of these diverging situations in the US and global crude oil markets, front-month WTI prices fell against longer-dated contracts, while Brent front-month prices increased.

Natural gas

The front-month natural gas futures contract for delivery at Henry Hub settled at $2.98/MMbtu on Sept. 7, an increase of 16¢ from Aug. 1. Gas prices traded within a relatively narrow range for most of August as supply and demand factors kept the market in relative balance.

Injections into underground storage for the 4 weeks ended Sept. 1 were 37 bcf lower than the 5-year average build for that period, bringing inventory levels closer to the 5-year average and ending the month 0.5% higher than the average.

Most of the Lower 48 states experienced temperatures close to normal or cooler than normal, which reduced cooling degree days and the need for air conditioning, which likely limited gas used to generate electricity.