At least 30 deaths and many more injuries are believed to be related to Hurricane Harvey, which has dropped more than 40 inches of rain on many parts of Houston this week.
The tragic human toll and properties damage aside, market speculators have began looking at the long-term economic effects of the storm, both globally and, more specifically, for the Middle East.
According to Business Insider, Hurricane Harvey last Friday slammed the epicenter of Texas’ refining industry, which processes approximately one-third of America’s oil.
Companies including Exxon Mobiland Valero Energy have shut down their facilities in the area. Goldman Sachs estimated that the hurricane has taken three million barrels a day, or roughly 17 per cent of refining capacity, offline.
To understand more about how this natural disaster may affect the region’s and the world’s markets, AMEinfo conducted the following Q&A with Jameel Ahmad, Vice President of Market Research, FXTM.
AMEinfo: Can Hurricane Harvey create a positive surge on oil prices? And if it does, will it last?
FXTM: While you’d think a hurricane may potentially cause disruption in oil production and subsequently result in a positive surge in oil prices, I am personally not convinced. Investors are still selling the commodity despite the news. Part of the reason is that, despite Houston being seen as a very important state for the US oil industry, the disruption of inventories will not be material enough to disturb the overall oversupply in the global markets.
AMEinfo: What are the state of oil fields in the Houston area in terms of production or refining and the security measures that need to be taken?
FXTM: In recent times, Houston has become established as an important hub for the energy markets, including both US oil and gas exports. It is thought that US refinery capacity might be down by as much as 15 per cent, but it is estimated that some refineries are already running at reduced capacity.
Security considerations will need to be taken seriously before anyone is allowed back to work. Potential water damage to infrastructure can only be assessed appropriately once the environment normalises.
AMEinfo: Will global markets be affected, in terms of oil supplies, trade and commodity indexes?
FXTM: While Houston has become established as an important hub for the US oil and gas industry, I don’t think the flooding in Houston is likely to have a long-lasting impact on global markets. If Houston had been seen as the main contributor to energy markets across the globe, this situation would be different. The potential losses in output will most likely be recoverable later on, or perhaps from increased production elsewhere. This is why the news of a natural disaster in Houston has not encouraged me to become bullish on oil.
AMEinfo: What are the economic ripple effects for this region, if any?
FXTM: It is very unlikely that Hurricane Harvey will have any impact on the UAE or the wider GCC economy. The events in Houston are also unlikely to have a long-lasting impact on the United States economy either. When it comes to natural disasters, history reveals that the US always recovers what was lost in terms of economic output. Investors should be monitoring the potential impact of the hurricane on market fluctuations.