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Hurricane Irma, return of Gulf Coast refineries push oil price to four-week jump

Palpable market anxiety imposed by potential damage to the United States oil production from Hurricane Irma and rise in demand for crude by restarted refineries in the Gulf Coast have been fingered in the new four-week rise in global oil prices.

Report from leading FactSet data of the research group, MarketWatch shows that West Texas Intermediate the US crude oil for October rose by 47 cents, or 0.9 per cent, to $49.13 a barrel, on track for its highest settlement level since August 9.

Already, Brent crude, the global benchmark gained 67 cents, or 1.2 per cent, to $54.05a barrel, trading around its highest level in over three months.

Besides, analysts at Commerzbank said in a note that “Oil market participants have become used to tropical storms causing no lasting damage to the energy infrastructure. This may change now, prompting the market to price in something of an uncertainty premium. Many market participants viewed the latest fall in the WTI price as excessive in any case”.

Oil prices have also responded positively to suggestions Tuesday by the Russian energy minister, Alexander Novak, that Russia and Saudi Arabia would be open to extending their output cut agreement.

Commerzbank analysts also argued further that “The strong cooperation of the leading oil producers in combating the ‘oil glut’ is making market participants hopeful that stocks may be quickly reduced, which is boosting the price rise”.

Other industry pundits are upbeat that the upswing in crude prices marked a swift reversal from last week, when prices had languished in the wake of Hurricane Harvey. The storm knocked out more than 20 per cent of the US refining capacity, cutting demand for crude and weighing on prices.

Refining capacity has since started to come back online, providing support for crude. That, however, is weighing on gasoline prices that rallied last week as refineries shut down and created a short-term shortage. Gasoline for October delivery fell by 2.5 per cent to $1.657 a gallon.

Currently, the market is preparing for potential disruptions to oil production in the Gulf of Mexico as the result of Hurricane Irma, which made landfall in the Caribbean earlier on Wednesday, and other brewing storms. If crude output is hindered by the new storms it would boost prices, the analysts said.

The Organisation of the Petroleum Exporting Countries (OPEC)—of which Saudi Arabia is the largest member—and 10 producers outside the cartel, including Russia, first agreed late last year to cap production at around 1.8 million barrels a day lower than peak Ocober 16 levels, with the aim of reining in the global oil glut and sending prices higher.

The deal, which was extended in May until March 2018, has been undermined by falling compliance, growing US output and an unexpected surge in production from Libya and Nigeria—two member states exempted from the agreement because their oil industries had been damaged by civil unrest.

But experts are of the view that ahead to official US data this week on crude inventory levels, which have fallen consistently in recent months, caution that the information was likely to be less reliable than usual as a result of Harvey impacts.