Crude prices continue to slacken, with West Texas Intermediate (WTI) crude prices now in a range of $45.91 – $46.40 per barrel (/b), the lowest prices in over five weeks. Demand for crude has dropped as refineries remain closed or are running at reduced capacity. Gasoline prices have jumped by nearly 4.7%, with futures contracts opening at $1.8154/gallon and hitting a high of $1.9009/gallon this session, the highest prices seen since July 2015.
Tropical Storm Harvey made landfall in southwestern Louisiana this morning, affecting some of the country’s largest refineries. Over the weekend, it was estimated that approximately 10% of U.S. refinery capacity was closed. The figures rose to 13% – 15% early this week, and the latest forecasts suggest that as much as 25% – 30% of the country’s refining capacity may be shut in depending on the next wave of rains and flooding. Motiva Enterprises was reportedly shutting its giant Port Arthur, Texas, refinery, which at over 600,000 barrels per day (bpd) is the largest refinery in the United States. Even refineries outside the affected areas are having difficulties receiving crude feedstock and shipping refined product.
U.S. crude inventories for the week ended August 25 were reportedly drawn down by 5.78 million barrels (MMbbl), according to the American Petroleum Institute (API). This greatly exceeds the industry expectation of a 1.75-MMbbl drawdown. The API also reported a gasoline stock build of 0.476 MMbbls. The Energy Information Administration (EIA) will release official data later today.
The status of inventories is helping ameliorate the impacts of the hurricane. Crude stocks have been declining since the second quarter of the year, while gasoline stocks have remained high—just at a time when refinery crude runs are reduced and gasoline supplies are tight. Between the first week of April and the week ended August 18, crude stocks have been drawn down by 70.2 MMbbls. Gasoline inventories have been drawn down by only 6.2 MMbbls, leaving ample supplies at the end of the summer driving season.
However, as more flooding arrives, distribution becomes a challenge. The Colonial Pipeline reported that it was running at reduced capacity because of limited supply from Houston and damage at the Pasadena, Houston and Cedar Bayou facilities.
Markets have calmed following North Korea’s missile launch over Japanese airspace. Investors viewed the latest Kim-Trump verbal exchange as more moderate than the last. The market response indicates that most experts consider it unlikely that the conflict will escalate.
WTI crude opened at $46.31/b this session, a drop of 55 cents from yesterday’s opening. Currently this morning, WTI prices are $46.01/b, down by 30 cents since today’s opening. The daily price range has been $45.91/b – $46.40/b.
