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Oil prices up as refineries restart after Harvey, traders wary of Hurricane Irma

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Three massive storms, Hurricane Irma, Hurricane Jose and Tropical Storm Katia could impact oil prices in the coming days. National Oceanic and Atmospheric Administration image. 

Oil prices up as refineries put squeeze on supplies in the Gulf

On Wednesday oil prices rose on strong global refining margins and the restarting of US Gulf Coast refineries shuttered during the onslaught of Hurricane Harvey.

With Category 5 storm Hurricane Irma hot on Harvey’s trail, traders remain concerned that the storm could knock out a major demand centre and force more fuel shortages.  Tropical Storm Katia is forming off the eastern coast of Mexico and Hurricane Jose is trailing in Irma’s massive footprint.

“Everyone is just grappling with the spate of storms that are populating the Gulf,” John Kilduff, a partner at Again Capital told Reuters.

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US West Texas Intermediate was moving toward the $50/barrel mark by 1:35 p.m. EDT.  US WTI rose 50 cents to $49.16 and benchmark Brent was up by 63 cents to $54.01/barrel.

Goldman Sachs analysts, including Damien Courvalin, say they predict half of the refining capacity shut down by Harvey will be back online by Thursday.

The US finance company said in a note that it believes increased activity in the wake of Harvey could boost long-term oil demand as people rebuild houses and make new purchases.

“The potential for some US onshore production curtailment and the likely demand recovery during the reconstruction suggest that the impact on the balance may become slightly positive after a few months,” they said. “Such an outcome would ultimately be supportive of U.S. oil demand.”

In a note, Goldman analysts warned that curtailed processing of natural gas liquids could negatively impact US shale production.

Goldman acknowledges its assessment could change drastically should Hurricane Irma make a violent landing in the US.

The National Hurricane Center says with maximum sustained wind speeds of 185 mph,  Irma is the strongest storm ever seen in the Atlantic and is expected to hit south Florida this weekend.  Irma is bigger, faster and stronger than Hurricane Andrew, the 1992 destructive storm that packed winds as high as 175 mph.

Florida oil terminals and distributors are tracking the storm, which could impact fuel shipments to the Sunshine State.  Florida is mostly dependent on waterborne deliveries of gasoline and diesel.

Thomson Reuters data shows about 250,000 barrels per day (b/d) of refining capacity in Cuba and Dominican Republic is in the immediate path of Hurricane Irma.

Back in the Houston area, some refineries are either operating again or in the process of restarting.  According to Reuters, Phillips 66 began restarting its Sweeny, Texas refinery on Tuesday and the plant is expected to be fully operational by mid-month.

“Refineries coming back online is putting a squeeze on supplies in the Gulf,” Kilduff told Reuters. Crackspreads, a measure of refining profitability, are tighter on higher crude prices and lower gasoline futures.

The Labour Day weekend pushed back by one day data releases on US crude stocks by the American Petroleum Institute and the US Energy Information Administration. Analysts expect US crude stocks likely rose 4.7 million barrels last week and refined product inventories were expected to fall.

Some Libyan production has returned after the 280,000 b/d Sharara oilfield gradually restarted production on Wednesday after a pipeline blockade was lifted, according to Reuters’ sources familiar with the Libyan oil industry.

 

Posted in: Energy Financial

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