Crude Oil's Hurricane Irma Boost Could Dissipate With the Storm

Crude Oil's Hurricane Irma Boost Could Dissipate With the Storm

Harry Tchilinguirian, global head of commodity markets at BNP Paribas, said the market was still determining the extent of the damage of Hurricane Harvey on oil refineries, while anticipating the effect of Hurricane Irma, which made landfall in the US over the weekend.

U.S. West Texas Intermediate crude CLc1, meanwhile, lost 7 cents, or 0.1 percent, to settle at $49.09 per barrel.

"While some are concerned about the demand side [from Irma] I don't think it's that big a situation", said James Williams, president of energy consultant WTRG Economics, noting that Harvey had more of an impact on crude, "The demand for crude is going to be set by the refineries coming back online".

Oil prices dipped on Thursday over fears that Hurricane Irma in the Caribbean could interrupt crude shipments in and out of the United States, and as Libyan output began to recover from disruptions. According to the latest estimate from commodity pricing group S&P Global Platts, production in August from both countries combined was about a half million barrels per day above the level from October, the month used by OPEC as a peg to gauge cuts and quotas.

Hurricane Irma hit the Dominican Republic and Haiti on Friday, heading for Cuba and the Bahamas.

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The Energy Information Administration (EIA) reported a build of 4.6 million barrels in the week to September 1st which was slightly larger than the analyst consensus for a build of 4 million barrels and followed a draw of 5.4 million barrels in the prior week. Although it has weakened to a tropical storm, Irma is still producing some wind gusts to near-hurricane force, the National Hurricane Center said at 8:00am EDT on Monday. Harvey slashed refining capacity across Texas, forcing shutdowns of key refineries from Corpus Christi and Houston to Port Arthur, including the largest USA fuel-making plant.

However, Goldman said that its prediction for increased fuel demand could be upset if Hurricane Irma were to make landfall in Florida, where it would not be felt so much on the sparse oil infrastructure than on fuel demand. The North American benchmark WTI is now trading at $47.8 per barrel and Brent at $5 per barrel premium to WTI.

Almost all the position changes came from WTI, where hedge funds became much less bearish about the supply situations as refineries began to restart.

Harvey's impact was also felt in oil production. The Saudi commitment to OPEC cuts is 486,000 bpd. Allocations to customers in Europe will drop by 70,000 bpd.

"Just bear in mind that this blowout in premium isn't going to last forever", cautioned Davis, the oil bear.

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