Hurricane Harvey to hit oil markets beyond US: Emirates NBD
The Hurricane Harvey on the Texas Gulf Coast will affect oil markets worldwide, with a mixed impact expected on energy prices in the near term, Dubai-based Emirates NBD said in a report on Monday.
The storm, which is the most powerful hurricane to hit the United States in a decade, has led to serious flooding in the state of Texas, affecting oil and gas production and refining infrastructure.
“The hurricane season has historically had an outsized impact on US energy markets, but as the US has become both a much larger producer and exporter of crude oil the reverberations of Hurricane Harvey will be felt further afield,” the lender said.
A prolonged disruption of US oil cargoes to Asia will lead regional buyers to search for comparable light grades, which will support Brent futures in the short term, the report added.
Brent crude futures were last 0.04 percent higher at $52.42 per barrel (bbl), while WTI prices were trading 1.1 percent lower at $47.35/bbl.
“In the week ahead of the storm, WTI and gasoline futures had already diverged with gasoline futures shooting to their highest level since 2015 while WTI closed lower,” Emirates NBD said.
The divergence between crude and gasoline is due to the large share of refining capacity in the Gulf region that has been hit by the storm and will remain disrupted owing to flooding, the report added.
The Gulf Coast of Texas holds more than 26 percent of the total refining capacity in the US, and the entire Gulf region, represents more than 50 percent of total refining infrastructure.
Despite the disruption of refining capacity, the storm is unlikely to deliver much of a boost to oil prices, Emirates NBD noted, adding that relying on one-off variables is “not a sustainable strategy for rebalancing markets.”
“A sustained boost to prices will only be apparent if indeed damage is significant in onshore oil fields, particularly in the Eagle Ford region which is less likely to be inured to hurricane conditions compared with offshore Gulf of Mexico fields,” it added.
According to official data from US government agencies, crude production in the Gulf of Mexico had to be partly suspended due to the storm.
The US Bureau of Safety and Environmental Enforcement estimates the outages at 379,000 barrels per day, and as much as 300,000 barrels per day of land-based production capacities may also have been closed, Germany’s Commerzbank said in a report on Monday.
“It is not yet possible to predict how long the refineries will remain shut,” the lender said, adding the closure of the Houston Ship Channel and a number of loading terminals in the Houston area is likely to hamper imports and exports of crude oil and oil products.
“These after-effects of Hurricane Harvey thus look set to substantially distort the upcoming US inventory statistics,” Commerzbank added.