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Weekly Wrap: All Eyes on Aftermath of Harvey

The storm in Texas led us to consider the impact on the energy and insurance sectors. Plus, expect a slowdown at Best Buy.

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All eyes were on the Gulf Coast this week as people all over the world surveyed the destruction of Harvey.

The important story was, of course, the human toll the storm took, but investors too eyed what impact it could have on the markets, particularly on the energy and insurance sectors. And although there was big movement in a few individual stocks ( HollyFrontier (HFC) jumped as a refiner outside the path of the hurricane), the market as a whole took the event in stride.

Morningstar energy strategist Allen Good took a closer look at what impact the storm could have on oil prices and volumes in the months to come:

Early indications are that much of the roughly 4 million barrels per day of refining capacity in the Houston/Texas Gulf Coast region will be affected to some degree, either directly through flooding or indirectly through inability to secure feedstock as key shipping channels are closed. Disruption of flows throughout the region could potentially affect a further 3.5 mmbd of refining capacity in Louisiana, while preventing the export of 1.8 mmbd on average of refined product from the Gulf Coast. Our rough modelling, assuming refinery outages last longer than waterway disruptions, suggests the net impact of the hurricane will result in a build in crude inventories and a draw in product inventories, supporting the early price movements.

That said, the timing remains problematic. There is only one week remaining in the summer driving season before demand typically wanes and refining utilisation falls. As such, the impact of lost capacity will be felt less than it would have been a couple months ago. Moreover, inventories of gasoline and distillate remain near the upper end of the five-year averages, further blunting the impact of lost capacity.

On the insurance front, Brett Horn expected the losses to be manageable:

While estimates of total insured losses remain in flux, it is clear that Hurricane Harvey has caused considerable damage in Texas. We expect most of the property-casualty insurers we cover to incur material losses.

Still, the impact should be manageable, and we are doubtful that the hurricane will have a material impact on any of our fair value estimates or on pricing trends in the industry. We would note that our models account for the possibility of large natural catastrophe losses, even though the exact timing is impossible to predict.

Within our coverage,  Allstate (ALL) has the most exposure to Texas by far, with a little over $1 billion in annual homeowners' premiums in the state and 12% market share. The other companies with material Texas exposure include  Travelers (TRV),  Chubb (CB), and  Progressive (PGR). Commercial carriers could see meaningful losses as well, given the potential disruption to the oil industry.

Morningstar manager research analysts also reported that Houston-based mutual fund families were experiencing business as usual and that business continuity plans worked as expected.

In earnings news, Best Buy reported strong results, but R.J. Hottovy, and the CEO, don't think current growth rates are sustainable.

Jeremy Glaser does not own (actual or beneficial) shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.