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August 31, 2017 11:45 AM, EDT
US to Release Oil From Strategic Reserve Due to Harvey
crude oil pumpjacks Daniel Acker/Bloomberg News

The U.S. government is releasing half-a-million barrels of crude oil from the Strategic Petroleum Reserve to a Gulf Coast refinery as the region’s refining industry works to recover from the devastation of Harvey.

The crude released to the Phillips 66 refinery will take the form of an exchange, in which the company will replace the oil once supplies are flowing again. The decision by U.S. Energy Secretary Rick Perry authorizes 200,000 barrels of sweet crude and 300,000 barrels of sour crude to be drawn from SPR’s West Hackberry site and delivered via pipeline, Jess Szymanski, a spokeswoman for the department, said by email.

Harvey has shuttered about 23% of U.S. refining capacity, with multiple refineries in the Houston, Port Arthur and Beaumont, Texas, areas closed, including the nation’s largest operated by Motiva Enterprises LLC. The storm also led to some flows halted on the Colonial Pipeline, a major transportation source for fuel to the Northeast. Gasoline futures climbed as much as 8% to a 25-month intraday high in New York Thursday.

The last time the Energy Department authorized an emergency exchange of oil from the reserve was in 2012 during Hurricane Isaac, according to a person familiar with the authorization. During that time, Marathon Petroleum Corp. requested an emergency loan of 1 million barrels to supplement its supplies to support refining operations, according to the Energy.gov website. Prior to that, exchange agreements also occurred in 2008 during Hurricanes Gustav and Ike.

Phillips 66’s Lake Charles refinery has capacity to process 239,400 barrels a day, according to data compiled by Bloomberg. In January, the Energy Department accepted a bid by Phillips 66 to buy crude from the reserve, the first sale of government crude since 2014. The sale was the first in a series of planned draw-downs through 2025 totaling almost 190 million barrels, or 27% of the reserve. A second sale of 10 million barrels is expected before October.