Oil drop continues on refinery closure

Shale oil boom softens the energy blow from Harvey

Spencer Platt Getty Images

On the New York Mercantile Exchange crude futures for October delivery rose 0.58% to $46.84 a barrel, while on London's Intercontinental Exchange, Brent gaind 0.47% to $51.66 a barrel.

Crude products saw prices sink as the devastating storm saps demand from refineries but puts gasoline prices higher demand.

USA oil futures slumped Monday, with West Texas Intermediate crude dropping 2.5% to $46.67 a barrel on the New York Mercantile Exchange, as market participants assessed the impact of Tropical Storm Harvey, which slammed into the Texas Gulf Coast late Friday as a Category 4 hurricane.

The refinery closures helped to push US gasoline futures to a two-year high of $1.7799 per gallon on Monday, though they had receded to $1.7466 by 1325 GMT on Tuesday.

The damage assessment could lead to more volatility. Peak flooding is not expected until Wednesday or Thursday, jeopardizing the reopening of refineries. In Libya, militia pipeline blockades closed three oilfields and forced state-run National Oil Corp to declare force majeure at several sites.

"Refineries in Asia should run much harder to make up for (U.S. closures), which is supportive for Brent", said Olivier Jakob, managing director of oil analysis firm PetroMatrix.

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Still, Mr Jakob warned that the scale of United States upstream outages was not yet clear, and extensive damage on oilfields or pipelines could boost WTI prices.

But it won't just be about the impact on the USA, especially given that this is the first major hurricane to hit the Gulf region since the country became a exporter of crude oil.

The sharp fall in oil prices comes amid a bearish period for crude futures, which slumped to a fourth-straight weekly loss last week, as investors continued to question Opec's commitment to the global pact to curb production. "In fact, many USA offshore Gulf of Mexico barrels have been exported to Asia this year", Tran said.

In Colombia, a bomb attack by the leftist ELN rebel group halted pumping operations along the country's second-largest oil pipeline, the 210,000-bpd Cano-Limon Covenas.

However, Williams doesn't expect the build in crude supplies to be quite that large given the lower oil production in the Gulf.

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