U.S. refiners in the Midwest will be among the biggest winners after Hurricane Harvey dealt a blow to their competitors on the U.S. Gulf Coast.
Refiners such as PBF Energy (PBF)
and HollyFrontier that are not hit by Harvey are on course for their best quarter in two years amid fears of fuel shortages that helped push profit margins for making gasoline up as much as 21 percent on Monday <RBc1-CLc1>.
The U.S. refining industry enjoyed strong margins in recent weeks and the fallout from the hurricane is likely to extend the bullish run for weeks. Midwest refiners have the added advantage of pricing their fuel based on benchmark prices in the Gulf Coast markets, which hit five-year highs on Monday.
"The Midwest refineries are best positioned. They will get the same boost in prices without the disruption," said Mark Broadbent, a refinery analyst with Wood Mackenzie.
PBF Energy shares closed on Monday up 8.3 percent, while HollyFrontier ended the day up 6.5 percent.
Valero and Phillips 66 (PSX)
, refiners with significant capacity shuttered in the Gulf, closed the day up just 1.1 percent and 0.28 percent, respectively.
More than 2 million barrels per day of U.S. refining capacity remain shut because of Harvey, which slammed into the Texas coast near Corpus Christi late on Friday. Restarting those plants even under the best conditions can take a week or more.
Compounding matters is that the Houston Ship Channel, a prime artery for crude supplies, could be closed for an extended period of time.
The storm is set to keep dumping torrential rain on the state for days, potentially delaying refinery restarts. If any of them are damaged, strong profit margins for other refineries will last longer.
"Once the rain stops, we finally can get assessment of any damage and how long this will take," said Broadbent.
The U.S. East Coast is largely supplied via the Colonial Pipeline from the Gulf Coast, but those supplies are expected to be tight in upcoming weeks as refiners in and around Houston get back on their feet.
Philadelphia Energy Solutions booked cargoes of gasoline into Florida, a traditional Gulf Coast market, two shipping sources said on Monday.
West Coast refineries are expected to ship barrels into the western side of Mexico in coming days and weeks, temporarily replacing an emerging market for Gulf Coast refiners, the shipping source said.
U.S. refineries were running at near full rates in the weeks before the storm, chasing healthy margins as the critical summer driving season comes to a close and leaving very little spare capacity to help supply the hard-hit Texas region as it recovers from the storm.
"The Gulf Coast is not only going to need gasoline for transportation, but to rebuild a society," Ed Hirs, an energy professor at the University of Houston, said on Monday. "For those refineries not impacted, they will certainly profit."
Reporting by Jarrett Renshaw