Oil Slips From Five-Month High With Hurricane Near U.S. Coast
(Bloomberg) — Oil edged lower from a five-month high as Hurricane Laura bore down on key refining facilities on the U.S. Gulf Coast, with forecasts saying it will strengthen rapidly into a “potentially catastrophic” Category 4 storm.
Crude and gasoline futures both fell in New York after surging on Tuesday. Now a Category 3 hurricane, Laura is expected to strengthen to Category 4 before making landfall late Wednesday or early Thursday along the Texas-Louisiana coast, according to the National Hurricane Center. More than 84% of oil output in the Gulf of Mexico has now shut, while almost 3 million barrels a day of refining capacity has been closed.
Laura has the potential to take some big refineries offline and disrupt global energy flows. But the hurricane will likely only have a short-term impact on global prices with this year’s lackluster summer driving season nearing an end and a pickup in consumption remaining uncertain due to the pandemic. Gasoline demand in key consuming nations appears stuck at about 10% to 15% below year-earlier levels, while jet fuel usage is much further behind.
“Oil traders will be pre-occupied with the developments of the hurricane today,” said Tamas Varga, an analyst at brokerage PVM Oil Associates Ltd. “The most dangerous hurricane of the past 15 years is approaching the major U.S. oil producing and refining center.”
On its current track, the storm could lead to around 10% to 12% of U.S. refining capacity being shut for more than six months, according to a disaster modeler with Enki Research. Tanker rates to ship gasoline from Europe to the U.S. are already surging even before Laura makes landfall.
Laura’s hit to refineries on the Gulf Coast could last for weeks, Morgan Stanley analysts said. It’s likely that flooding and logistical impairments will cause the biggest risks, while Covid-19 may also mean that the demand impact from the storm is more acute than usual, they said.
Oil prices rose earlier after the American Petroleum Institute reported U.S. crude inventories fell by 4.52 million barrels last week and gasoline stockpiles shrunk by 6.39 million barrels, according to people familiar with the data. That would be the fifth straight weekly decline in crude supplies if the industry estimates are confirmed by official data due Wednesday.
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