×

UPDATE 1-Harvey threatens more U.S. Gulf refineries, others remain underwater

(Updates prices; adds details on Galveston Bay and Motiva refineries, quotes)

HOUSTON, Aug 29 (Reuters) - Heavy rains and flooding from Tropical Storm Harvey on Tuesday triggered more oil refining outages in Texas, bringing the total offline to more than 16 percent of overall U.S. capacity as the storm took aim at plants along the Louisiana coast.

Between five and 15 inches of rain was expected in south-central Louisiana, the National Hurricane Center said on Tuesday. The storm had dropped back over the Gulf of Mexico on Monday, sending heavy rains from Houston through to Lake Charles, Louisiana.

The U.S. Gulf Coast is home to nearly half of domestic refining capacity, with some 5.6 million barrels per day (bpd) of capacity in Texas and 3.3 million bpd in Louisiana.

About 3 million bpd of U.S. capacity is already shut, and restarting those plants even under the best conditions can take a week or more.

U.S. gasoline futures on Tuesday rose 0.9 percent to $1.73 per gallon, and have jumped about 6 percent since last Wednesday, when refiners started shuttering capacity ahead of the storm making landfall.

Heating oil futures, a proxy for diesel and other distillates, added 0.5 percent.

"These closures are already impacting markets, with crude prices lower on a perceived drop in demand and gasoline prices spiking in response to lower supply," said Sandy Fielden, director of oil and products research at Morningstar.

U.S. crude futures were down 1.6 percent on the day after falling more than 2 percent in the previous session.

Fuel prices are expected to keep rising as refining capacity remains down.

In cash trading on Tuesday, the spread between Gulf Coast gasoline prices and benchmark futures rallied further after hitting a five-year high a day earlier in anticipation of constrained supply. That price was lately 24 cents above benchmark futures, traders said.

The full impact of the refining outages, which started last week when Harvey slammed into Corpus Christi, Texas, remained uncertain, analysts said.

"The current disruptions are affecting both demand and supply, making it difficult to assess the impact on balances at this point," wrote analysts at JBC Energy.

Marathon Petroleum Corp was shutting down two refineries in the Houston area on Tuesday because of flooding, according to sources familiar with plant operations.

Affected are Marathon's 459,000 bpd Galveston Bay Refinery in Texas City, Texas, 45 miles (72 km) south of Houston, the sources said, and its 86,000 bpd Texas City refinery across the street from the Galveston Bay plant.

The Galveston Bay Refinery has flooding in its tank farm and on nearby streets, the sources said.

Exxon has shut all units at its 362,300 bpd Beaumont refinery in east Texas due to high water in the plant, said sources familiar with the plant.

The company earlier cut production at its Baytown, Texas, refinery, the nation's second largest.

Motiva Enterprises plans to make a final decision on Tuesday on whether to shut the nation's largest crude refinery as the storm pours more water into its Port Arthur, Texas, plant, two sources familiar with plant operations said.

Motiva said on Monday that operations at the plant were "stable."

Citgo's 425,0000-bpd Lake Charles, Louisiana, refinery has reduced production because of crude oil shipping disruptions, Energy News Today reported on Monday. Citgo is keeping a close eye on operations, a spokeswoman said on Monday night.

Previous storms have substantially affected demand, which may offset expectations for tightening refined product supply.

Retail gasoline prices have started to rise, with the average price for a gallon of gasoline rising 1 cent overnight to $2.38 nationally, while the average price in Texas rose 2 cents to $2.19 per gallon.

Compounding matters is the possible closing of the Houston Ship Channel, a prime artery for crude supplies, for an extended period of time.

(Additional reporting by Jarrett Renshaw in New York; Writing by Gary McWilliams; Editing by Jeffrey Benkoe and Meredith Mazzilli)