Oil markets roiled as Harvey hits US petroleum industry

A sunken boat lies submerged in front of an oil rig after tropical storm Harvey hit Port Aransas, Texas on Sunday. (AFP)
Updated 28 August 2017

Oil markets roiled as Harvey hits US petroleum industry

LONDON: Oil markets were turbulent on Monday after Tropical Storm Harvey wreaked havoc along the US Gulf Coast over the weekend, crippling Houston and its port, and knocking out several refineries as well as some crude production.
US gasoline prices hit two-year highs as massive floods caused by the storm forced refineries in the area to close. In turn, US crude futures fell as the refinery shutdowns could reduce demand for American crude.
Brent futures gained as pipeline blockades in Libya slashed the Organization of the Petroleum Exporting Countries (OPEC) output by nearly 400,000 barrels per day (bpd).
Harvey — now downgraded to a tropical storm — is the most powerful hurricane to hit Texas in more than 50 years, killing at least two people, causing large-scale flooding, and forcing the closure of Houston port as well as several refineries.
The US National Hurricane Center said Harvey was moving away from the coast but was expected to linger close to the shore through Tuesday. It said floods would spread from Texas eastward to Louisiana.
Texas is home to 5.6 million barrels per day (bpd) of refining capacity, and Louisiana has 3.3 million bpd. Over 2 million bpd of refining capacity was estimated to be offline as a result of the storm.
Spot prices for US gasoline futures surged 7 percent to a peak of $1.7799 per gallon, the highest level since late July 2015, before easing to $1.7529 by 11:30 a.m. GMT on Monday.
US traders were seeking oil product cargoes from North Asia, several refining and shipping sources told Reuters, with transatlantic exports of motor fuel out of Europe expected to surge.
“Global refining margins are going to stay very strong,” said Olivier Jakob, managing director of Petromatrix.
“If (US) refineries shut down for more than a week, Asia will need to run at a higher level, because there’s no spare capacity in Europe.”
About 22 percent, or 379,000 bpd, of Gulf production was idled due to the storm as of Sunday afternoon, the US Bureau of Safety and Environmental Enforcement said.
There might also be around 300,000 bpd of onshore US production shut in, trading sources said.
Brent crude futures were up 20 cents at $52.61 per barrel. US West Texas Intermediate (WTI) crude futures were down 44 cents at $47.43 a barrel.
The price moves pushed the WTI discount versus Brent to as much as $5.21 per barrel, the widest in two years.


Cathay Pacific shelves US dollar bond plans amid Hong Kong unrest

Updated 36 min 32 sec ago

Cathay Pacific shelves US dollar bond plans amid Hong Kong unrest

SINGAPORE: Cathay Pacific Airways has shelved plans for its first US dollar debt deal in 23 years, the airline said on Friday, after sources told Reuters that global investors had questioned the pricing due to civil unrest in Hong Kong.

The airline, the biggest corporate casualty of widespread anti-government protests in the Asian financial hub, on Friday lowered its second-half profit expectations, citing “incredibly challenging” conditions in its home market.

Cathay had started meeting investors in Hong Kong and Singapore on Sept. 24 after it mandated four banks to explore carrying out a US dollar denominated bond, according to a term sheet issued at the time, seen by Reuters.

It would have been the first US dollar debt deal for Cathay since 1996 and had been touted as a landmark transaction for the airline given all of its debt is denominated in Hong Kong dollars.

The issuance was to be unrated, and two sources with knowledge of the matter said that Cathay was willing to pay 200 basis points over the US Treasuries rate to secure three-year or five-year funding, with the size and term of the placement dependent on demand.

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Cathay has only carried out 12 bond transactions in the past decade and all were priced in Hong Kong dollars.

However, investors demanded a higher price of at least 300 basis points over US Treasuries, which made the deal more expensive for Cathay, said the sources, who were not authorized to speak publicly about the matter. Cathay’s term sheet had said the transaction would be reliant on market conditions. A Cathay spokesman on Friday said the Hong Kong dollar private placement market was providing more funding opportunities and a debt issuance in that market was completed last month. “We will continue to monitor the US dollar bond market in future,” he said in a statement.

Dealogic data showed that Cathay raised $102 million in October and $64 million in May through Hong Kong dollar denominated deals.

The airline has only carried out 12 bond transactions in the past decade and all were priced in Hong Kong dollars.

Cathay had mandated Bank of America Merrill Lynch, BNP Paribas, Deutsche Bank and HSBC to work on the shelved US dollar bond deal.