Hurricane Harvey that battered the Texas coast and Louisiana with heavy winds and torrential rains, has pushed the U.S. gasoline market into a severe backwardation as the country suffers supply shortages. It is being reported that large refineries in the Gulf Coast were shut down that leading to a drop in refining capacity in the tune of 3.9 million barrels per day. Exxon Mobil, Royal Dutch Shell, and Phillip66, all have closed their refineries in the region including the biggest oil refinery in the United States. Hurricane Harvey is the strongest hurricane to hit Texas in over 50 years. Even after being downgraded to a tropical storm over the weekend, the system dumped over 50 inches of rain over Houston, drowning the fourth-largest city in the United States.

The shutting down of refineries has pushed the gasoline market to severe backwardation as the contract for September delivery breached $2 per barrel before expiry. The contract for September delivery traded as high as $2.03 per gallon, while the contract for October delivery reached $1.67 per gallon, pointing to a $0.36 per gallon backwardation. The market is in backwardation until March 2018, which contract is trading at $1.48 per gallon.

While the price of gasoline has gone up, the price of WTI crude oil has declined sharply as supplies remain clogged without demand from shut refineries and closed down ports.