Insights and Market Perspectives

What Hurricane Harvey Could Mean For Energy Markets

Author: Portfolio Specialist Group

August 28, 2017

Hurricane Harvey made landfall near Corpus Christi, Texas on Friday with Category 4 strength, combining as much as 50 inches of rainfall with 130 mph winds. With widespread flooding and significant wind damage in a major metropolitan area such as Houston, obviously the primary concern is the brewing humanitarian crisis. On a secondary note and with respect to financial markets, the energy sector is also being heavily impacted.

As of Sunday, refinery outages totaled approximately 3 million barrels per day, equating to 16.5% of total U.S. activity. Luckily, most of these outages are preventative closures in anticipation of the storm, with only a few locations reporting minor flooding at this point. However, if Harvey, now downgraded to a tropical storm, continues its path through Houston, further outages may be on the way for the 850,000 barrels per day of capacity currently online in the nation’s fourth largest city.

Refineries at Risk of Outages

Source: Goldman Sachs, August 28, 2017

The impact on production has been much less at this point, with only around 11% of total U.S. production offline, and only 3% of current gas production.

Gas prices have been quick to react, however, spiking 5% on average since Tuesday (August 22). Morgan Stanley predicts current conditions will be supportive of gas prices in the near-term, as reduced supply should drive prices higher. The medium-term impact becomes more uncertain and depends on the balance between U.S. refinery and upstream outages. Threats of heavy rain still expected and subsequent flooding and power outages could slow recovery efforts.

Regional Gas Prices Have Risen Sharply Since August 22

Source: Bloomberg, Morgan Stanley Research, August 28, 2017

Onshore U.S. production has typically normalized within a month, based on the most recent hurricanes as a proxy, while the impact on demand usually lasts several months. However, with Hurricane Harvey being the most powerful storm to hit U.S. shores in a decade, it is difficult to forecast the true impact that lies ahead at this point.

 

 

Commentaries contained herein are provided as a general source of information based on information available as of August 28, 2017 and should not be considered as personal investment advice or an offer or solicitation to buy and/or sell securities. Every effort has been made to ensure accuracy in these commentaries at the time of publication; however, accuracy cannot be guaranteed. Market conditions may change and the manager accepts no responsibility for individual investment decisions arising from the use of or reliance on the information contained herein. Investors are expected to obtain professional investment advice.

About AGF Management Limited

Founded in 1957, AGF Management Limited (AGF) is an independent and globally diverse asset management firm. AGF brings a disciplined approach to delivering excellence in investment management through its fundamental, quantitative, alternative and high-net-worth businesses focused on providing an exceptional client experience. AGF’s suite of investment solutions extends globally to a wide range of clients, from financial advisors and individual investors to institutional investors including pension plans, corporate plans, sovereign wealth funds and endowments and foundations.

For further information, please visit AGF.com.

© 2018 AGF Management Limited. All rights reserved.

Written by

Portfolio Specialist Group

AGF Investments Inc.

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