Deadly tropical storm Harvey delivered its second punch on the U.S. Gulf Coast on Wednesday, adding to the misery of thousands in the region and keeping its tight grip on the core of the U.S. energy industry.
Harvey, which made its first landfall as a Category 4 hurricane over the weekend, has left at least 20 dead and thousands displaced in its aftermath of record-shattering rain and flooding.
It has knocked out more than 20% of total U.S. refining capacity, which is highly concentrated along the Gulf Coast. More refineries are now shut down, including the nation’s largest, Motiva Enterprises’s Port Arthur refinery, which had been running at limited capacity.
“We view persistent refinery and midstream capacity outages as the two biggest potential sources of sustainable disruptions, in turn creating risk that the ongoing recovery in production will only be partial,” analysts at Goldman Sachs said in a note Wednesday.
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The refinery shutdowns, port closures, and production disruptions have left energy markets long 1.9 million barrels a day of crude, short 1.1 million barrels a day of gasoline, and short 800,000 barrels a day of distillates since Thursday, the day before the storm hit, the Goldman analysts said.
Stock action on Wednesday mirrored past sessions, albeit with more gainers as the U.S. markets rose following strong economic data.
Shares of refiners continued to lead gains on prospects for margins. Stock of Andeavor ANDV, +1.91% formerly known as Tesoro Corp., added more than 2%.
Shares of refiners that operate mostly outside the Southeast, such as Delek U.S. Holdings Inc. DK, +1.60% and HollyFrontier Corp. HFC, +0.19% which had jumped earlier in the week, inched higher.
In a separate note, Goldman Sachs said Andeavor, Delek, HollyFrontier, and PBF Energy Inc. PBF, +2.80% are among the “key stocks” that should realize near-term higher refining margins while facing “limited production impacts” from Harvey.
Marathon Petroleum Corp. MPC, +2.06% Phillips 66 PSX, -0.17% and Valero Energy Corp. VLO, +1.00% are the companies facing longer refining downtime from the storm, they said.
“We see on median, a 5% upside potential to our 2017 EBITDA estimates from the refining outages assuming a 15-day outage duration for sensitivity purposes,” they said.
Among exploration and production companies, the analysts singled out Denbury Resources Inc. DNR, -1.10% Carrizo Oil & Gas Inc. CRZO, +5.30% EP Energy Corp. EPE, -2.49% and EOG Resources Inc. EOG, +0.51% as the companies potentially more negatively impacted as they have the greatest production from Texas’ oil fields.
“Execution remains a key theme for E&P stock performance, especially as investor oil bullishness has waned,” the analysts said.
While “temporary weather-related disruptions” may not warrant investors penalizing the stocks, “the combination of lower oil prices and concern over production disruptions driven by refinery/infrastructure downtime may at least temporarily prolong investor malaise until there are clearer signs of execution/capital discipline/capital-efficient growth,” the analysts said.
Lack of demand from refineries caused U.S-traded crude CLV7, -0.06% to hover around $46 a barrel on Wednesday, with prices falling despite a sizable weekly drop in U.S. supplies.
The low level of crude processing has resulted in a growing shortage of gasoline in the U.S. and is driving gasoline prices up steeply on both sides of the Atlantic: Because the U.S. may import gasoline from Europe, gasoline prices in Europe are also picking up, analysts at Commerzbank said.
The Energy Select Sector SPDR XLE, +0.13% exchange-traded fund was up 0.2% and has lost 17% in 2017, while the S&P 500 index SPX, +0.34% has gained 10%.