Hurricane Harvey caused petrol prices to rise in Texas and throughout the United States. Does this mean that natural disasters such as hurricanes are good news for the share price of commodity companies?
As well as the devastation caused to the city of Houston by the high winds and a year’s worth of rain falling in a few days, there was also a major impact on the Gulf of Mexico’s oil and gas infrastructure.
The Gulf is one of the most important areas in the US for energy resources and infrastructure. It accounts for 17% of the country’s crude oil production and more than 45% of the US’s petroleum refining capacity is there.
Pump up the volume?
The petrol price rising may suggest that oil company profits are also doing well but unfortunately it is not that simple. In fact, crude oil prices fell after the hurricane.
Although there was less petrol available, the damage caused to Houston, the US’s fourth biggest city, meant that demand fell significantly.
There was also less demand from the refineries meaning that the loss of demand was greater than the loss of supply.
So companies specialising in oil production did not see their share price rise. To add to this, before the hurricane there was a large oversupply of crude oil and high levels of storage so there was never likely to be a shortage.
The offshore oil rigs in the Gulf of Mexico were spared the brunt of the hurricane. But modern rigs tend to fare pretty well in hurricanes these days and can shut down production and wait for the wind and rain to abate.
Land-based refineries are not so hurricane proof and Harvey’s path made for them rather than the rigs. The US’s largest oil refinery, Motiva’s at Port Arthur, was among those forced to close. Overall refining capacity in the country fell by about 16%.
But refinery companies benefitted from the fall in capacity. Valero, the largest refinery company in the US shut down its Texas operations. Three days into the storm its shares were up by 4%.
Three other refiners, Valero, Phillips 66 and Marathon Petroleum, gained $850m in value despite their Texas refineries being closed.
Refiners make their money from the difference in the price of crude oil, which was falling, and the price of petrol at the pump, which was rising.