WTI Futures Rally on Expected Crude Draw, Hurricane Sally

Liubov Georges
By  Liubov Georges , DTN Energy Reporter

WASHINGTON (DTN) -- Nearby delivery month oil futures on the New York Mercantile Exchange and Brent crude on the Intercontinental Exchange charged higher in afternoon trade Tuesday, with West Texas Intermediate and RBOB futures surging nearly 3% ahead of heavy rainfall and expected flooding in Mississippi and Louisiana this week as Hurricane Sally tracks along the northern Gulf of Mexico, prompting oil and gas shut-ins in Gulf waters and refineries in the storm's path to idle operations.

The Bureau of Safety and Environmental Enforcement Tuesday afternoon reported approximately 27% or 497,072 barrels per day (bpd) of current oil production in the Gulf of Mexico has been shut-in ahead of Hurricane Sally. This compares with 21.4% on Monday. New shutdowns come as rainfall projections for Hurricane Sally show the storm could unleash 16 inches of rain and a storm surge between nine and 12 feet with landfall expected east of the Mississippi Delta Wednesday morning.

The New Orleans refining system along the Mississippi River is home to about 2.5 million bpd of refining capacity, with some of those plants vulnerable to flooding. Phillips 66 earlier this week said it closed the 255,600 bpd Alliance refinery in Louisiana, while Chevron USA Inc. said it was making preparations at its 356,400 bpd Pascagoula refinery in Mississippi.

Oil traders on Tuesday also positioned ahead of weekly inventory report from the American Petroleum Institute, with a consensus calling for U.S. commercial crude oil stockpiles to have decreased by about 2.2 million barrels (bbl) during the week ended Sept. 11, with gasoline inventories projected to have been drawn down 1.9 million bbl and distillate inventories to have increased by 1.1 million bbl.

The oil complex was also boosted by strong economic data from China, showing accelerated growth in its industrial and retail sectors. China's industrial output jumped 5.6% in August from the year earlier and retail sales rose for the first time this year, beating analysts' expectations for zero growth last month.

Both International Energy Agency and Organization of the Petroleum Exporting Countries in their market outlooks this week see China's economic growth to be the main driving force behind a recovery in oil demand in 2021.

Domestically, Federal Reserve reported Tuesday industrial production eased to a 0.4% growth rate in August after two months of solid growth, indicating economic recovery is losing steam. Despite strong gains in June and July of 6.1% and 3.5%, respectively, industrial production in August at 101.4 is still 7.5% below its pre-pandemic February level.

On the session, October WTI futures advanced $1.02 to settle at $38.28 bbl, and ICE November Brent futures gained $0.92 to finish at $40.53 bbl. NYMEX ULSD October futures advanced 0.59 cents to $1.0993 gallon and the front-month RBOB contract surged 3.13 cents to $1.1381 gallon.

Liubov Georges can be reached at liubov.georges@dtn.com

Liubov Georges