Oil prices likely to get a boost from stock draws, demand growth

  • Oil prices likely to get a boost from stock draws, demand growth

Oil prices likely to get a boost from stock draws, demand growth

A half million barrels of US government oil is being released from the Strategic Petroleum Reserve to a Gulf Coast refinery - the first emergency discharge in five years - after storm Harvey halted foreign crude deliveries to the heart of the nation's refining industry.

"It takes some time to start up a refinery under normal circumstances, and it wouldn't be surprising if they run into hiccups", said Smith, the HIS Markit analyst. "So consumers are likely to see higher prices for at least the short term", said Kristie Bell, spokeswoman for Des Moines-based Kum & Go, which has 11 locations in the Omaha area.

In other words, Harvey has disrupted about one-fifth of the country's total refining capability.

On worldwide oil markets, Brent crude futures were up 20 cents or 0.4 percent, at $52.09 per barrel.

Global benchmark Brent crude was at $51.22, up 36 cents from the previous session, when the contract fell more than 2 percent. At the moment, more than 4 million barrels per day (more than a dozen refineries in Texas) of processing capacity are in the autonomous mode.

USA crude inventories fell by 5.78 million barrels last week, the API industry group reported on Tuesday, suggesting a gradual tightening of the United States oil market.

"This is not like anything we have ever seen before", said Bruce Jefferis, chief executive of Aon Energy, a risk consulting practice.

The energy regulator in Texas said data from the industry show the average daily volume of crude oil production was up about 3 percent from previous year.

Exxon has shut its 362,300 bpd Beaumont refinery in east Texas due to high water in the plant, sources told Reuters. The port outages will wreak havoc on oil differentials - Gulf Coast refiners import heavier crude to process, while coastal ports export lighter oil coming from Texas shale fields to customers overseas.

Brent crude futures have slipped despite generally bullish data on U.S. inventories. About 1.4 million barrels of extra oil that "won't be refined to fuels will be sent to storage as long as refineries are shut-in". Gasoline stocks increased by 476,000 barrels, while distillates - decreased by 486,000 barrels.

Crude production was also affected, but to a lesser degree. National average gasoline prices have climbed barely 3% over the past week, to $2.40 a gallon for regular, according to AAA.

Nymex September gasoline futures reached $2.0086 per gallon early today, a near 7% rise versus yesterday and around 20% higher than last week.

"It seems the market is betting on a return to normalcy soon after the floodwaters recede", said Patrick DeHaan, senior petroleum analyst at GasBuddy.

The pipeline's operator estimated Thursday that it can resume carrying fuel in the Houston area by Sunday, potentially avoiding a lengthy shutdown that would intensify gasoline shortages.

Hurricane Harvey may achieve in global crude oil markets in a few days what Opec and its allies have struggled to achieve in months - a tightening of supplies and a rise in prices. Two of the major pipelines delivering gasoline, diesel and jet fuel from the Gulf Coast are operating at reduced rates or plan to shut entirely, with wholesale markets in Chicago and the Gulf region seeing sharply higher prices.