Oil Mixed in Tuesday Trade

NEW YORK (DTN) -- New York Mercantile Exchange spot-month oil futures moved mixed Tuesday morning, with RBOB and ULSD futures higher after pausing overnight as the impact of Hurricane Harvey on the Gulf Coast refining capacity starts to become clearer while the market also expects stock draws for crude oil and refined products to have occurred last week.

The West Texas Intermediate crude contract gave up early gains and reversed lower, while RBOB futures posted a session high of $1.7575 gallon overnight, so far holding below Monday's better than two-year high of $1.7799 gallon.

At last look, the September RBOB futures contract rallied 4.40cts to $1.7563 gallon, trading at a 16.32cts premium to the October RBOB contract that was up 2.18cts to $1.5931 gallon.

The wide RBOB backwardation reflects concern about short-term supply on the Gulf Coast and position squaring ahead of Thursday's expiration of the September contract. In addition, the Labor Day holiday on Sept. 4 signals the end of peak summer driving demand, with gasoline demand consistently declining in September from August.

Harvey, now downgraded to a tropical storm, is still dumping rain on Houston, with accumulation already over 40 inches, with 10 more inches of rain still expected, according to the National Weather Service. The storm is poised to make another landfall in Houston, computer models show, with river and reservoir waters still swelling. Texas Gov. Greg Abbott has warned of a long road to recovery from the record-breaking floods caused by the deadly storm.

The Gulf Coast and the market are grappling with the shutdown of nearly 12% of the nation's refining capacity and shutdowns of pipelines and terminals, power outages and dramatically hampered road and air travel.

About 19% of the oil production in the Gulf of Mexico of 1.75 million bpd remains offline, according to the Bureau of Safety and Environmental Enforcement. Industry observers said availability of product supplies will depend on damage that may have occurred due to the storm.

Although Harvey initially made landfall last Friday, the storm has lingered in the Houston area and is now on course to expand to Louisiana, threatening Motiva Enterprises LLC's Port Arthur refinery in eastern Texas and Exxon Mobil's Beaumont refinery at the Texas-Louisiana border.

Comparing Harvey with Hurricane Katrina in 2005, Barclays Research said although the impact to production is expected to last longer, demand for fuel is likely to fall sharply in September due to a lack of driving-related demand. This scenario could delay the rebalancing of market fundamentals.

"In the coming weeks, we expect Hurricane Harvey's impact to make it harder for OPEC to rebalance the market and maintain bullish sentiment," said Barclays.

A survey of analysts show the market expects U.S. crude oil supply to have been drawn down 2.5 million bpd during the week-ended Aug. 25. A 2.2 million bbl decline in gasoline stocks and a 1.0 million bbl distillate supply are also expected to have occurred last week.

The American Petroleum Institute is scheduled to release its weekly oil data at 4:30 PM ET while the Energy Information Administration is scheduled to issue its weekly report 10:30 AM ET Wednesday.

Overseas, Libya's National Oil Corp. declared force majeure on crude oil from three fields whose total production is about 450,000 bpd after local militia shutdown a pipeline connecting those fields to an export terminal. The lost production widened Brent crude's premium over West Texas Intermediate on Monday to a two-hear high at $5.32 bbl.

In early trade, the September ULSD futures contract climbed 2.45cts to $1.6597 gallon while the October contract gained 2.09cts to $1.6518 gallon.

The NYMEX October WTI crude contract was 19cts lower at $46.38 bbl, reversing from a session high at $46.96 bbl.

The October Brent crude contract on the ICE platform was flat at $51.89 bbl, giving up early gains ahead of expiration Thursday afternoon. The November Brent contract was up 6cts at $51.48 bbl.

George Orwel can be reached at George.orwel@dtn.com