Oil prices up on signs of market rebalancing
Oil prices rose slightly on Thursday despite data from the United States Energy Information Administration showing an increase in US crude stocks.
Benchmark Brent crude was up by 11 cents to $54.31/barrel by 12:55 p.m. EDT and US WTI was down 11 cents to $49.05/barrel.
According to data from the US EIA, crude stocks in the US rose by 4.6 million barrels, higher than the 4.0 million barrel forecast in a Reuters poll.
Hurricane Harvey walloped the US Gulf Coast after making landfall on Aug. 25. The Category four storm cut US refinery utilization rates by 16.9 percentage points to 79.7 per cent last week, the lowest rate since 2010.
US Gulf Coast refinery utilization rates fell to 63.4 per cent, the lowest since the EIA began collection such data in 2010.
“Refinery runs were cut as the storm approached; I expect this trend will continue in next week’s stats which will reflect the full storm impact on Texas Gulf Coast refining,” Andrew Lipow, president of Lipow Oil Associates in Houston told Reuters.
US Gulf Coast refineries and petroleum-handing ports are slowing coming back online following Harvey. According to Reuters, as of Wednesday, about 3.8 million barrels of daily refining capacity, or 20 per cent of US total refining capacity, remained shuttered.
US crude exports also fell in the wake of Harvey, dropping by 749,000 barrels per day (b/d) to 153,000 b/d.
“We do expect to see [crude] demand destruction not only in the Texas region but also in Florida with the impact of [Hurricane] Irma,” Tariq Zahir, managing member at Tyche Capital Advisors, told Marketwatch. “We do feel we will continue to see crude oil builds in the weeks to come due to the demand destruction and especially since we are past the summer driving season.”
He expects to “continue to see builds [for crude supplies] in the weeks to come as we see refineries slowly come back online and we are also going to refinery maintenance season.”
Category 5 storm, Hurricane Irma, slammed into the Caribbean islands overnight, packing wind speeds of 185 mph and is on course to hit Florida this weekend. So far, officials report 13 deaths due to Hurricane Irma.
Fuel retailers in the Sunshine State are struggling to keep up with demand as residents rush to flee the threatened area. Florida Governor Rick Scott has urged residents on both coasts to prepare for a mandatory evacuation order and currently, residents of the Florida Keys, some areas of Miami and Fort Lauderdale are under evacuation order.
Atlantic storm Jose is developing in Irma’s path, and is expected to to gain in strength and intensify into a major hurricane by Friday, according to the US National Hurricane Center. Current tracking shows the centre of Jose skirting most populated Caribbean islands as it moves north in the Atlantic Ocean.
Category 1 Hurricane Katia is in the Gulf of Mexico, located in the southern Gulf of Mexico and is expected to turn southwest on Friday and and approach the coast of Mexico by early Saturday.
“Demand may continue to be distorted as multiple hurricanes make their way across the Caribbean,” Jeffrey Halley, senior market analyst at futures brokerage OANDA told Reuters.
In a sign that the crude market is rebalancing, the volume of North Sea crude being held in storage has dropped significantly since mid-August, according to shipping data and Reuters’ sources.
According to the sources, two supertankers being used to store North Sea crudes off the UK coast currently hold about 4 million barrels of oil. Three weeks ago, the tankers held nearly 10 million barrels.
“The whole market is tightening up,” said a Reuters North Sea trade source. “Crude inventories have been drawn down, and there is no direct economic incentive for floating storage.”
Brent futures have recovered and are now back to their pre-Harvey backwardation after concerns over a significant drop in crude demand did not occur.
