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Oil Prices Decline as Harvey Hurricane Roars Toward Texas

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Tropical storm Harvey is intensifying in the Gulf of Mexico (GoM) and is predicted to become the biggest hurricane to hit Texas in the last 12 years. Energy companies are thus busy chalking out ways to counter the storm which is expected to result into a major landfall by tonight or tomorrow.

Impact of Hurricane Harvey

The U.S. National Hurricane Center has issued a warning of severe rainfall and heavy flooding across eastern Texas, GoM, Louisiana and the lower Mississippi Valley. The agency expects Hurricane Harvey to become a category 3 hurricane having wind velocity between 111 miles per hour (mph) and 129 mph. The hurricane is likely to cause weeks of disruptions at refineries in its path and shut units, spark fires and create supply shortage affecting facilities for months.

GoM, which is expected to bear the brunt of the storm, is the energy hub of the United States. It accounts for about 18% and 5% of the total oil and gas production of the nation respectively. The region is also a home to about 50% of the country’s refining capacity. Refineries in the path of the storm have already shuttered leading to weaker crude demand and reduced gasoline supply.

The sudden outages in the refineries are forcing traders to buy gasoline as they are expecting the commodity price to rise further in the future. With the anticipation of lower future crude prices, traders are selling oil.

Oil prices fell by more than 2% to eventually close at $47.43 per barrel on Aug 24, owing to the anticipation of reduced demand of crude oil due to the hurricane. However, gasoline prices rose by 2.8%, resulting in a three-week high to eventually close at $1.66 per gallon.

How Have Energy Players Responded?

The storm has affected the operations of the energy companies and they are take measures to combat its effects. Several energy companies have suspended their offshore operations already or are in the process of evacuating their oil and gas facilities in GoM. Nearly 10% of the GoM crude output capacity were closed on Aug 24.

Major energy players like Exxon Mobil Corporation (XOM - Free Report) , Anadarko Petroleum Corporation (APC - Free Report) and Royal Dutch Shell plc (RDS.A - Free Report) , all carrying a Zacks Rank #3 (Hold), have already shut their production platforms in the GoM in the wake of the expected landfall. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Anadarko Petroleum has temporarily stalled its production in Boomvang, Gunnison, Lucius and Nansen oil fields. Exxon Mobil has also planned to reduce its output at Hoover Facility in GoM and evacuate its staff from the offshore facilities. Shell has suspended production at Perdido — the deepest production platform — and evacuated the facility. Statoil ASA is on its way toevacuate staff from the Eagle Ford shale region in South Texas.

Independent refiner Valero Energy Corporation (VLO - Free Report) is keeping a close watch on its facilities in Corpus Christi as Hurricane Harvey is forecasted to douse the region. Two refineries — with refining capacity of 450,000 barrels per day of crude — were shut in Corpus Christi, the home to some of the major refineries in the nation. 

However Chevron Corporation and (CVX - Free Report) and BP p.l.c. (BP - Free Report) have not interrupted their operations or evacuated their facilities.

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