Crude storage costs rise in first auction following Hurricane Harvey: In the LOOP

The price of front-month sour crude oil storage at the Louisiana Offshore Oil Port on Tuesday sold at its highest level since May while at least 2 million b/d of Texas refining capacity remains offline following Hurricane Harvey last week.

Matrix Markets hosts, on behalf of LOOP, a monthly auction in which the oil terminal sells the right but not the obligation to store a crude blend called LOOP Sour in one of its eight underground caverns. Each capacity allocation contract, or CAC, allows the owner to store 1,000 barrels of LOOP Sour during the contract month.

In Tuesday's auction, LOOP sold all 8,700 CACs it put up for sale. October LOOP Sour storage cleared at 20 cents/b for 2,400 CACs. That is the highest front-month storage price since May, when it cleared at 27 cents/b, according to previous auction results published by Matrix. In between, front-month storage was sold in the range of 15-17 cents/b and just 4,525 CACs out of a total 7,250 were sold in the August auction.

Hurricane Harvey's impact on the US Gulf Coast refining market appears to have given a boost to storage markets. As refineries remain offline and ports are closed or seeing limited traffic, incoming crude tankers must be routed to ports elsewhere along the US Gulf Coast, such as LOOP.

In the final seven days of August, Louisiana ports brought in 4.1 million barrels of crude compared with 1.5 million barrels for Mississippi, 1.2 million barrels for Texas and 946,000 barrels for Alabama. LOOP accounted for 75% of the crude imports into Louisiana.

That crude must be stored if it is not immediately put into the non-Texas refining sector, and that is likely behind the slight uptick in LOOP Sour storage values; however, the market will need to balance a tighter contango spread to determine if it is more economic to hold LOOP Sour in cavern and sell forward or deliver it ex-cavern in the front month of October.

In August, the LOOP Sour front- to second-month spread was 3 cents/b when taking into account storage costs and Platts assessments for the blend. That is an improvement over July, when the spread was minus 4 cents/b, but down from Q1's average of 11 cents/b and the Q2 average of 5 cents/b, Platts data shows.

The 'In the LOOP' Americas crude oil wrap runs each Monday in Crude Oil Marketwire, North American Crude and Products Scan and on the Platts Global Alert. You can read the FAQ: USGC LOOP Sour crude here and find the full special report LOOP Sour Crude: A benchmark for the future here.