Tropical Storm Harvey could cause fuel shortages in Latin America after it shut in around 1 million barrels per day of U.S. gasoline and diesel exports typically destined for countries such as Mexico.
Harvey barreled into Texas on Friday as the strongest hurricane to hit the state at the heart of the U.S. oil and gas industry in over 50 years.
The United States is the world's largest net fuel exporter, and most of those shipments sail from ports in Texas and Louisiana. Harvey shut down the ports of Corpus Christi and Houston in Texas, and both are major fuel export ports.
"Any hiccup in U.S. refined product exports is highly disruptive to the supply chain given the dependency of nations like Mexico and other Latin American countries on the U.S.," said Michael Tran, director of global energy strategy at RBC Capital Markets.
"The reliance on U.S. products is particularly key this year given that many refineries in Central and South America are running at abysmal levels."
Latin American countries such as Mexico and Venezuela have become increasingly reliant on imports because they have failed to invest in expanding refineries to keep up with rising demand.
The U.S. exported 2.49 million barrels per day (bpd) of refined products and 100,000 bpd of crude to Latin America in the first quarter, according to the Energy Information Administration. Over 950,000 bpd ended up in Mexico - the biggest overseas market for American-made fuel.
Mexico depends on U.S. fuel to meet nearly three quarters of its domestic gasoline demand.
A spokesperson for Mexican national oil company Pemex said its gasoline and diesel inventories were sufficient to make up any shortfall in supply Harvey may trigger.
"New shipments via safe routes are on the way (to Mexico) and left on time from the southern Untied States before the hurricane arrived," he said.
He did not detail the volumes Mexico holds in stockpiles or how many days of demand could be covered with emergency supplies.
Aside from waterborne shipments, the United States also sends supplies to Mexico via rail and road, but those flows have been hit too.
Union Pacific Corp, the no. 1 U.S. railroad, said it was moving rail cars in yards prone to flooding to high elevations and would curtail trains operating through areas likely to be hit by excessive winds and rain that will impact operations.
Serious disruption to global oil supplies could trigger a coordinated international release from the Paris-based International Energy Agency (IEA). The IEA has previously released emergency supplies to cushion the impact of natural disasters and war on international energy supplies.
It is unclear when the port of Houston will reopen as Harvey is forecast to move closer to the area in coming days, dumping torrential rain. The port of Corpus Christi suffered minor infrastructure damages but was making preparations to restart, a spokeswoman said on Sunday.
Fuel supplies to Europe will also be disrupted by the storm. The United States is the biggest source of ultra low sulfur diesel to Europe and Latin America.
Latin American countries such as Mexico will need to seek diesel supplies from Asia and the U.S. West Coast, traders said.
"They will have to pay high," said one trader of distillates, a group of fuels that includes diesel and jet fuel.
Europe would be the most likely source of more gasoline for Latin America, said Vikas Dwivedi, global oil and gas strategist at Macquarie.
"If there are a lot of shutdowns, whatever capacity is running will get consumed in the U.S., it will have to be, so Latin America will have to get its barrels from elsewhere. It creates a domino effect," Dwivedi said.
Harvey's effect on the prices of gasoline and diesel will have an impact on fuel prices in Colombia, mining and energy minister German Arce told Reuters.
At least 2 million bpd of Gulf refining capacity is currently offline and damage assessments at four Corpus Christi, Texas, area oil refineries were underway on Saturday, a first step toward resuming production. However, by Sunday, more refineries were shuttered as the threat of flooding grew.
Alternative supplies for some Latin American countries would have come from within the region several years ago, but the largest fuel producers such as Brazil and Venezuela now have very limited capacity for exports.
Just over a decade ago, which was the last time a storm as powerful hit the U.S. mainland, the country was the biggest net importer of refined products in the world.
"It's a completely different world now than 2008 in terms of crude and products flows," said Matt Smith, director of commodity research at ClipperData.
Reporting by Devika Krishna Kumar, Marianna Parraga, David Alire Garcia, Julia Cobb and Jessica Resnick-Ault.