Flooding from Tropical Storm Harvey has shut almost a fifth of US oil-refining capacity, triggering worries about a gasoline supply crunch as the slow-moving tempest lumbers through the heart of America's petrochemicals industry.
Cushing, a pipeline and storage hub, serves as the price point for the benchmark West Texas Intermediate quality crude. Approximately 18.5 percent of production in the Gulf of Mexico has been shut-in and 13 refineries, which total to 20.9 percent of American refining capacity, remain closed.
Brent oil LCOc1 , the worldwide benchmark for crude trading, was down 50 cents at $51.50 a barrel by 1239 GMT. Glencore is thought to be supplying Nigerian crude while Shell is providing Agbami and Kissanje, a trader said.
Front month gasoline futures in the States rocketed 11.90% to $2.1090 a gallon on NYMEX, dragging the entire complex higher with them amid analyst talk about the increasing global importance of USA supplies in recent years due to the "shale revolution" and the lifting on restrictions of American exports of oil products.
September heating oil HOU7, +4.64% which also expires at the settlement, rose 7.8 cents, or 4.6%, to $1.752 a gallon.
They had been pressured by concerns USA refiners will stay shut and demand less oil, potentially leading to higher US stockpiles and rekindling fears of a global supply glut.
Crude markets remained weak after sharp losses in the previous session.
Harvey is the first major storm to seriously threaten the Gulf Coast energy sector in awhile.
"There is a danger of life-threatening inundation, from rising water moving inland from the coastline, during the next 12 to 24 hours", the NHC said, adding that 6 to 12 inches of rain could fall in far east Texas and southwestern Louisiana.
And as Harvey's path has shifted eastward, more refineries are facing heavy rains that could cause flooding.
Exxon Mobil on Sunday said it was shutting its Baytown refinery, the second largest in the country.
Exxon closed the second largest USA refinery, its 560,500 barrel-per-day (bpd) refinery in Baytown, Texas, complex because of flooding.
According to Barclays bank on Tuesday "around 2-3 million barrels per day of refining capacity is offline or in the process of shutting down" due to Harvey.
Plants in Lake Charles, Louisiana could also be affected next to feel the impact.
This comes as numerous refineries along the gulf coast were shut down or damaged, leading to speculation of a gas price hike due to a production shortage. "There isn't any known information about what's occurred yet". Valero also announced the shutdown of its Port Arthur refinery on Wednesday afternoon.
"It will be a while before operations can return to normal and the USA refining industry is bracing itself for an extended shutdown", Stephen Brennock of oil broker PVM said.