US refineries scale back as storm moves in; oil falls

The biggest refineries in the Northeast shut down or throttled back on Monday in advance of Hurricane Sandy, and oil prices fell sharply as it appeared the massive storm will reduce demand. Phillips 66 shut down its Linden, New Jersey refinery, the second-biggest in the Northeast at 285,000 barrels per day. The biggest refinery in the area, Philadelphia Energy Solutions, was nearly shut. Most other big refineries in the Northeast were running at reduced capacity.

Sandy is powerful enough to down trees and powerlines and cause widespread flooding. Businesses could also be shut for days. If so, demand for gasoline and other oil products would drop sharply.

The power outages and the shutdown of major cities “may take a toll on demand unlike anything we have seen before,” wrote Phil Flynn, a senior market analyst for Price Futures Group, in a report on Monday. “The impact on demand may not last for hours but more than likely for days,” he wrote.

Tom Kloza, chief oil analyst at Oil Price Information Services, said he expects the drop in demand for oil and refined products “will be about as significant as we’ve seen since Katrina made landfall” in 2005. Crude oil prices fell US$1, or 1.1 per cent, to US$85.32 a barrel in trading on the Nymex.