Following WTI crude's drop yesterday - apparently on reduced refinery demand due to Hurricane Harvey - RBOB gasoline is now tumbling, erasing yesterday's Harvey-related gains, as traders realize the short-term supply disruptions are offset by significant inventories.
As Bloomberg's Poonam Goyal noted previously, a spike in gasoline prices due to Hurricane Harvey, should be short-lived with well supported inventories across the petroleum value chain and the market past peak summer demand. Refiners plan seasonal maintenance in September and October with lower anticipated demand for crude oil and products. While severe facility damage would challenge winter blend prices, gasoline stockpiles in the Gulf Coast are at their highest August levels since 2007 and are almost 11% above the five-year norm.
Goldman also points out that the initial decline in demand will likely be greater than the decline in production. Beyond the declining share of US offshore production, there is little oil and gas output in the Western Gulf of Mexico. Further, the Eagle Ford shale play is further inland than the expected path.
The most significant impact is likely to be on refining, with 1.2 mb/d of US refinery capacity immediately threatened, representing 6.6 % of US available capacity. Should the hurricane turn East towards Houston after making landfall, threatened refining capacity would increase by another 2.5 mb/d.
Additionally, Goldman notes more broadly that beyond the initial hit, activity set to rebound to or above pre-disaster levels:
As our US economists have previously shown, natural disasters typically have two important—but generally offsetting—effects on economic activity: (1) sharp declines in demand and output in the short term followed by a rebound to the pre-disaster baseline or above, and (2) a boost to output from the rebuilding of damaged and lost property.
Specifically, the immediate impact on economic activity is negative but in the following months the impact is likely to be positive because workers make up for lost output, capital equipment is brought back online, consumers make purchases that did not take place during the disruptions, and the rebuilding of damaged property begins. The positive longer-term effects have typically been large enough to push the level of activity above the path that would have materialized without the disaster. Such an outcome would ultimately be supportive of US demand