Oil Futures Settle Higher
NEW YORK (DTN) -- New York Mercantile Exchange spot-month oil futures settled higher Friday but RBOB gave up most of the early gains after rallying to a four-month high. In aftermarket trading, September RBOB moved higher on late speculative position taking.
Harvey was upgraded a short time ago to a Category 3 storm with winds at 120 mph, and will cause flooding and restrict travel from Corpus Christi to Houston, Texas. The storm is expected to strengthen further before making landfall in the Corpus Christi area tonight, likely dumping about 35 inches of rain onto some parts of the Texas coast.
"There was some confusion about how strong the storm would be and whether it would affect supply or demand," said analyst Phil Flynn at Price Futures in Chicago. "Thirty-six to 48 inches of rain over a populated area will pretty much crush gasoline demand," added David Thompson, executive vice president at Powerhouse, a brokerage firm in Washington, D.C.
Four million people are living in the Gulf Coast areas expected to be affected by the storm, said President Donald Trump's homeland security adviser Tom Bossert during a White House press conference.
Thousands of those residents have been ordered to leave the path of the storm or are being evacuated to safety since this is a powerful, life-threatening storm, comparable to Hurricane Katrina, which devastated New Orleans 12 years ago, said Texas Gov. Greg Abbott.
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Harvey has already had some impact before landfall. Some 86 production platforms or 11.67% of the 737 manned platforms in the Gulf of Mexico have been evacuated as of this morning, said the Bureau of Safety and Environmental Enforcement.
The U.S. Gulf of Mexico accounts for nearly 20% of total U.S. crude oil production, and the Texas Gulf Coast is home to more than 25% of U.S. refining capacity, according to Energy Information Administration. This makes the Gulf Coast the largest domestic supplier of transportation fuels.
A number of refineries, terminals and pipelines and other aspects of oil infrastructure have shut or begun the process of shutting down in advance of the storm.
A weaker U.S. dollar and talk the Organization of Petroleum Exporting Countries and non-OPEC producers may extend their current production cuts through June 2018 also supported the oil futures rally. The dollar fell after Federal Reserve Chair Janet Yellen made no reference to U.S. monetary policy in her speech at the annual central bank conference in Jackson Hole, Wyoming.
With oil refineries shut, crude runs will drop in the short-term and crude oil inventories could start to rebuild after falling for eight consecutive weeks to a 19-month low. That's a scenario that could revive concerns about oversupply in the domestic oil market, said analysts.
"Outages and run cuts so far exceed 1.0 million bpd in capacity, reducing the consumption of crude oil but also curtailing product supply, with gasoline trading as much as five cents per gallon higher [earlier]," said analyst Tim Evans at Citi Futures. "There may be something of a buy the forecast and sell the landfall pattern to trade, with prices for gasoline easing to the extent that worst fears are not realized."
He added, "The storm may drive prices in the near term, but we also don't see it altering the global balance over the intermediate term."
Also supporting crude oil futures, Houston-based oil services firm Baker Hughes, Inc. reported Friday that the number of active oil rigs in the United States declined for the second straight week, down by four to 759, the lowest level since the last week of June.
September RBOB futures settled up 0.25cts at $1.6666 gallon, off a four-month high of $1.7406, up 4.26cts for the week. September ULSD futures contract settled up 0.13cts at $1.6223 gallon, off a two-week high of $1.6530, and little changed for the week.
NYMEX October West Texas Intermediate crude contract advanced 44cts to a $47.87 bbl settlement, down 64cts for the week. October Brent crude on the IntercontinentalExchange rose 37cts to $52.41 bbl at settlement, down 31cts for the week.
George Orwel can be reached at George.orwel@dtn.com
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