The U.S. energy department has approved the issue of up to 4.5 million barrels of oil from the Strategic Petroleum Reserve (“SPR”) to counter the disruption in the market caused by refinery outages in the U.S. Gulf Coast due to Harvey. The last time SPR approved such an emergency release was in 2012 following Hurricane Isaac.
Part of the overall federal initiative to respond to those impacted by Harvey, the emergency step will ensure that refining units have the crude oil they require to continue operating. This was necessitated after Colonial Pipeline – the country’s biggest gasoline mover – was closed down. The important pipeline is responsible for carrying gasoline between Houston and the East Coast.
The reserve was developed following the energy restrictions imposed by Arab nations in 1973 after the Yom Kippur War. This resulted in fuel supply panic and compelled the government to create an emergency reserve. The reserve has more than 700 million barrels of oil capacity and can meet domestic demand for more than a month. A network of tanks and deep underground storage caverns were used to create the reserve.
The Trump administration has sanctioned three million barrels for Marathon Petroleum Corporation (MPC - Free Report) , while Valero Energy Corporation (VLO - Free Report) will receive 500,000 barrels of oil per day. Both these companies carry a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Marathon Petroleum has resumed operations in its Galveston Bay refinery. Corpus Christi and Three Rivers refineries owned by Valero are now operational at half capacity. Per Bloomberg, the reserve will be delivered to the refineries from the Bayou Choctaw site.
Phillips 66 (PSX - Free Report) also received the emergency supply lent by the energy department. The company received 500,000 barrels of crude oil twice. The oil given to the Phillips 66 refinery is essentially in the form of a loan, which the company will replace at a later date when supplies become normal again.
Major refiners whose operations in Texas were hit by Harvey include ExxonMobil Corporation (XOM - Free Report) , Royal Dutch Shell plc (RDS.A - Free Report) , Petrobras (PBR - Free Report) and others.
Oil Release Aimed at Easing Gasoline Prices
Operations were disrupted in 13 Texas oil refineries and 11 ports. The halted crude deliveries in the U.S. Gulf coast refineries have made the market unstable due to reduced refinery output. It pushed the prices of oil products like gasoline higher for the last weeks. Gasoline price climbed up above $2 per gallon, which marks a two-year high. The government believes the move will curb rising prices and therefore benefit consumers. The energy department is yet to estimate a date by which the Gulf Coast refineries will be fully operational.
The energy department had initially thought of releasing gasoline from the emergency reserve located in New York Harbor, Boston and Maine. The 1 million barrels of gasoline reserve was built following the damage to New York fuel infrastructure due to the storm Sandy in 2012.
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