Oil up after Harvey fallout; Hurricane Irma heads into Caribbean
SINGAPORE/LONDON: Oil prices rose more than 1 percent on Wednesday as strong global refining margins and the reopening of US Gulf Coast refineries provided a more bullish outlook after sharp drops due to Hurricane Harvey.
But traders remained wary of Hurricane Irma, ranked as one of the five most powerful Atlantic hurricanes in the last 80 years, which was passing over the northernmost Virgin Islands on Wednesday afternoon and headed toward Florida at the weekend, raising concerns that it could knock out a major demand center and cause more fuel shortages.
There is also another tropical storm on Irma’s heels. Jose, heading for the Caribbean, strengthened to a hurricane on Wednesday and could become a major Category 3 storm on Friday.
Brent LCOc1 had gained 82 cents to settle at $54.20 a barrel. US West Texas Intermediate (WTI) crude futures Clc1 were up 50 cents at $49.16 a barrel. Prices were little-changed after industry data showed US crude stockpiles increased last the week.
“Everyone is just grappling with the spate of storms that are populating the Gulf,” said John Kilduff, a partner at Again Capital.
Many refineries, pipelines, and ports that were shut due to Harvey 10 days ago are restarting.
On Tuesday, about 3.8 million barrels per day (bpd) of refining capacity, or 20 percent of the US total, was shut. This compares with 4.2 million bpd at the height of the storm.
Phillips 66 began restarting its Sweeny, Texas refinery on Tuesday and expects the plant to be at full production by mid-September.
“Refineries coming back online is putting a squeeze on supplies in the Gulf,” Kilduff said. Crack spreads, a measure of refining profitability, have been constrained as crude prices have risen and gasoline futures have begun to be pared back.
Gulf Coast and Caribbean energy infrastructure began to brace for Irma. BP Plc said it would evacuate non-essential personnel from its Thunder Horse platform in the Gulf of Mexico, while Buckeye Partners has shut its Yabucoa oil terminal in Puerto Rico and was preparing for the storm at two other marine terminals in Florida and the Bahamas.
Oil terminals and distributors in Florida are tracking the storm, which could curtail fuel shipments to the state, which is largely dependent upon waterborne deliveries of gasoline and diesel.
Around 250,000 bpd of refining capacity in the Dominican Republic and Cuba lies in the immediate path of Irma, Thomson Reuters Eikon data showed.
Weekly storage data was expected to give a better view of the extent of Harvey’s impact on US fuel inventories although some analysts say it will take a few weeks more to get a complete picture.
US crude stocks rose last week, while gasoline and distillate inventories drew as refinery utilization rates plunged 11.1 percentage points to 83.9 percent of capacity, data from industry group the American Petroleum Institute showed.
Government data on Thursday is expected to confirm that crude stockpiles rose after nine straight weekly drawdowns, with analysts forecasting a build of 4 million barrels.
Longer-term, the oil industry outlook is for ample supplies and low prices as crude output remains high in the three biggest producing regions: Russia, the Middle East, and North America.
Adding to the longer term bearishness, some Libyan production returned. The 280,000 bpd Sharara oilfield, the country’s largest, was gradually restarting on Wednesday after the lifting of a pipeline blockade, Libyan oil sources said.