REPEAT: Houston Economist: Storm to Draw Down Oil Inventrs

Repeats Story Initially Transmitted at 18:08 GMT Aug 28/14:08 EST Aug 28

--Petrochemicals, Plastics Production Halt Could Filter to Higher Consumer

Prices

--Construction, Residential Real Estate Should See Pick-Up

By Jean Yung

     WASHINGTON (MNI) - Flooding across Texas from Hurricane Harvey, which has

shut down a quarter of U.S. Gulf of Mexico oil production, could give the region

an opportunity to draw down excess inventories and help support crude prices

long term, a regional economist told MNI in an exclusive interview. 

     Wholesale gasoline prices rose 15 cents even as the price of crude oil

remained stable as the storm hit Texas over the weekend. That came as a bit of a

surprise to regional economist Patrick Jankowski in Houston.  

     "We have such a surplus of crude and refined oil in this country, so I

think the prices will settle down fairly quickly," said Jankowski, vice

president of research for the Greater Houston Partnership, a local business

development organization. 

     "This may give us an opportunity to draw down the surplus that we might

have," he said. "In Houston we need crude prices to be high enough -- above $50

a barrel -- to support the local economy but low enough so it doesn't affect the

rest of the country." OPEC daily basket price stood at $49.93 a barrel Friday. 

     Harvey continues to linger over the region and is expected to bring more

rain and flooding in the next week. Energy companies were forced to shut in

about 22% of Gulf of Mexico oil production, or 378,633 barrels of oil per day,

due to the storm, according to the Department of Interior's Bureau of Safety and

Environmental Enforcement. 

     Overnight gasoline futures prices rose 7% to two-year highs, but a fall-off

in demand and high inventories should cap the rise, Jankowski said. "There may

be some spot shortages in refined, and it may take time to move some things

around the country, but there is enough crude in storage for future needs."

Overall stocks of gasoline and distillate in the region are at or above the top

end of the 5-year range, the Department of Energy said Monday. 

     He added that the broader economic impact will depend on the damage to the

energy infrastructure in the region as well as the length of business shutdowns

in the area.

     "No economic productive activity has occurred in this city for a week,"

Jankowski said. "It's like we've lost a week of economic output because

everyone's home. No one is doing anything except watching the news or rescuing

people." 

     The production disruption for the region's petrochemicals and plastics

sectors "will filter through the supply chain, resulting in a few dollars more

here and there on finished goods, which consumers will largely blame on

inflation," he said. 

     On the other hand, Houston's construction sector, which has been struggling

amid a slowdown in the oil and gas industry, could pick up sharply in the next

two to three months. 

     When Category 2 storm Hurricane Ike struck Texas in 2008, the region saw a

brief dip in construction employment in September but then hiring surged in

October and November before succumbing to the forces of the Great Recession in

December and January, Jankowski said. 

     Most of the boost in activity in the aftermath of Ike was in construction,

hotels and retail because people had to move out of their homes and find new

places to live. The apartment market in Houston, which has been "fairly weak" in

recent months as a result of overbuilding, will likely become more balanced. 

     Real estate values of homes will also get a broad reassessment based on

their susceptibility to flooding, Jankowski said. 

     "There are areas in Houston that flooded this time that have never flooded

before," he said. "Home values in neighborhoods that have flooded more than once

will go down."

     But whether the storm could slow homebuilding -- which has boomed in

Houston -- or have the opposite effect is difficult to judge. The region was on

track to build 27,000 new single family homes this year, the second most behind

the Dallas Fort Worth region in the state. 

     "On the one hand that could drop off, but it could also pick up as builders

position themselves for new demand." 

     "Everyone will want to be back in their homes before Christmas, but I don't

think that'll be possible," Jankowski said. "For some individuals, the impacts

will be forever. But Houston as a city is not in danger of floating away." 

--MNI Washington Bureau; +1 202-371-2121; email: jean.yung@marketnews.com