Oil markets rose midweek like a storm surge in anticipation of Hurricane Laura, fed by reductions in inventory and pre-storm buying. Laura hit Louisiana as a Category 4 hurricane early on Thursday morning. Approximately 500,000 residents were ordered to evacuate. Prices ebbed on Thursday and into Friday morning, but they are stabilizing and strengthening today. West Texas Intermediate (WTI) crude oil futures appear to be maintaining their hold around $43 a barrel. This should afford another finish in the black this week. Gasoline and diesel prices ebbed after their midweek spike, though buying and prices are picking back up today. Gasoline prices appear to be holding on for a finish in the black, while diesel prices are heading for a finish in the red.
Nearly half of the offshore oil platforms in the Gulf of Mexico were evacuated prior to the hurricane. Seven major refineries also closed. The damage is being assessed, but early reports indicate that industry preparedness and experience dealing with hurricanes prevented permanent damage to key infrastructure. Moreover, demand already had been suppressed by the pandemic, and supplies in inventory are ample. While localized price hiccups are expected, a severe fuel shortage should not be expected. Demand and inventory movements will be complex, however. Power outages are widespread, which will raise demand for fuel used in generators.
The combination of hurricane and pandemic is causing deep concern. Increased contact is unavoidable in shelters and evacuation paths, and a rise in infections is feared. As of the time of this writing, the Johns Hopkins Coronavirus Resource Center reports that global cases of COVID-19 have reached 24,495,232, with 832,484 deaths. Confirmed cases in the U.S. have risen to 5,870,185. U.S. deaths attributed to the disease have reached 180,862.
WTI crude futures prices opened at $42.98 a barrel today, up by $0.23 a barrel (0.5%) from last Friday’s open of $42.75 a barrel. The days leading to Hurricane Laura stimulated buying interest, and prices surged. Inventory reductions also supported prices midweek. Thursday brought an ebbing of prices. Today, prices are strong and stabilizing, and WTI futures prices are hovering around $43 a barrel. This should ensure another weekly finish in the black. Our weekly price review covers hourly forward prices from Friday, August 21 through Friday, August 28. Three summary charts are followed by the Price Movers This Week briefing, which provides a more thorough review.
Gasoline futures prices opened at $1.2786 a gallon today on the NYMEX, compared with $1.2981 a gallon on Friday, August 21. This was a decline of 1.95 cents (1.5%). March brought a crippling collapse of nearly 87 cents per gallon, but prices gradually crept back up in April and May. U.S. average retail prices for gasoline rose 1.6 cents to average $2.182/gallon during the week ended August 24. Eleven weeks ago, retail prices reclaimed the territory above $2 per gallon. Gasoline futures prices spiked midweek in response to the impending hurricane and a significant draw from inventories, hitting highs of $1.434 a gallon. Prices retreated on Thursday and into early Friday trading but are coming back currently. Gasoline futures are trading in the range of $1.270/gallon to $1.305/gallon. If prices hold, the week may end slightly in the black. The latest price is $1.2936/gallon.
Diesel opened on the NYMEX today at $1.2108/gallon, down by 3.63 cents, or 0.2.9%, from last Friday’s open of $1.2471/gallon. U.S. average retail prices for diesel retreated by 0.1 cent per gallon during the week ended August 17 to average $2.426/gallon. Diesel prices generally have weakened this year, missing some of the price recovery seen in crude and gasoline markets. Diesel futures prices spiked midweek in advance of Hurricane Laura, reaching highs of $1.27 a gallon, but prices retreated on Thursday and into Friday morning. Today, the downward trend has been arrested, but the week still appears to be heading for a finish in the red. Currently, diesel is trading mainly in the range of $1.20-$1.219/gallon. The latest price is $1.2106/gallon.
WTI Crude Prices
WTI crude forward prices opened on the NYMEX today at $42.98 a barrel, compared with $42.75 a barrel last Friday. This was a small gain of $0.23 a barrel (0.5%.) Prices strengthened this week in the lead up to Hurricane Laura, which at one point was growing so powerful over the Gulf of Mexico that it was feared it might make landfall as a Category 5 hurricane, one of the worst in history. Prices midweek also were supported by crude and gasoline inventory draws. Over the past month, WTI crude futures prices have solidified above $41 a barrel and even touched $43 a barrel, which has not happened for five months. Prices retreated in early morning trades, but buying interest is reviving, and WTI futures prices are hovering around $43 a barrel. The week may finish with prices in the black. WTI crude is trading mainly in the $42.75–$43.25 a barrel range currently. The latest price is $42.92 a barrel.
PRICE MOVERS THIS WEEK: BRIEFING
Oil markets rose midweek like a storm surge in anticipation of Hurricane Laura. Crude oil futures held last week’s modest gains, with midweek reductions in inventory and pre-storm buying causing prices to rise. Product prices also spiked midweek. Prices ebbed on Thursday and into Friday morning, but they are stabilizing and strengthening today. Texas and Louisiana residents in the storm’s path began evacuating prior to Hurricane Laura’s landfall, with approximately 500,000 residents ordered to evacuate. Laura hit Louisiana as a Category 4 Hurricane early on Thursday morning. Prices are stabilizing today, and WTI crude oil futures appear to be maintaining their hold around $43 a barrel. This should afford another finish in the black this week. Gasoline and diesel prices ebbed after their midweek spike, though buying and prices are picking back up today. Gasoline prices appear to be holding on for a finish in the black, while diesel prices are heading for a finish in the red.
Initial weekly unemployment claims remained stubbornly above the one-million mark again during the week ended August 22. The Department of Labor reported that 1,006,000 people filed initial claims during the week ended August 22, down by 98,000 from the prior week’s downward-revised level of 1,104,000. During the week of March 28, initial jobless claims hit a peak of 6,867,000. From that peak, initial jobless claims fell for 15 weeks. July brought a setback, and claims rose again. Two weeks ago, claims finally fell below one million, but they were not able to sustain the downward trend. During the 23 weeks since U.S. states began to issue shelter-in-place orders, 58.4 million Americans have filed initial jobless claims.
Hurricane Laura made landfall as a Category 4 hurricane at 1 a.m. on Thursday at Cameron, Louisiana. Phillips 66 and Citgo closed their Lake Charles refineries, approximately 50 miles north of Cameron, in advance of the storm. Cameron Louisiana also is around 50 miles east of Port Arthur, Texas, the site of key refineries run by Valero, Total and Motiva, all of which shut down. The ExxonMobil refinery in Beaumont Texas also closed, as did Chevron’s refinery in Pasadena, Texas. The hurricane hit with maximum sustained winds of 150 miles per hour and a major storm surge (9-12 feet,) causing immense damage and flooding. Nearly half of the oil producing platforms in the Gulf of Mexico were closed in advance of the storm. This accounted for around for 80% of U.S. Gulf of Mexico crude production. The hurricane cut power to approximately 900,000 customers in Louisiana, Texas and Arkansas. Increased use of generators will create additional demand for fuel. Fortunately, the storm weakened to a Category 2 hurricane as it moved north, was downgraded to a Category 1 hurricane, then downgraded again to a tropical storm at around noon local time on Thursday.
The damage is being assessed, but early reports indicate that industry preparedness and experience dealing with hurricanes prevented permanent damage to key infrastructure. Refinery operators are taking pains to explain that refinery re-starts may take a week or two, and that it is not as simple as “flipping a switch.” Fuel demand already was suppressed by the pandemic, and supplies in inventory are ample. While localized price hiccups are expected, a severe fuel shortage should not be expected.
The combination of hurricane and pandemic is causing deep concern. Evacuating and traveling to shelters or even distant motels is unavoidably bringing people into closer contact. Some residents decided to weather the storm, including some already jobless or displaced by the pandemic. Officials view it as inevitable that COVID-19 infections will rise. Louisiana’s governor notes that many testing sites were closed ahead of the hurricane, and they may be difficult to re-open if damaged or lacking staff.
As of the time of this writing, the Johns Hopkins Coronavirus Resource Center reports that global cases of COVID-19 have reached 24,495,232, with 832,484 deaths. Confirmed cases in the U.S. have risen to 5,870,185. U.S. deaths attributed to the disease have reached 180,862.
This week, data on supply, demand and inventory will be complicated because of Hurricane Laura. The American Petroleum Institute (API) released information on Tuesday showing a significant drawdown from crude oil and gasoline inventories, offset partly by an addition to diesel inventories. According to the API, 4.524 mmbbls of crude was drawn from stockpiles, along with 6.392 mmbbls from gasoline stockpiles. In contrast, diesel inventories grew by 2.259 mmbbls. The API’s net drain on inventories was a significant 8.657 mmbbls. Market analysts had predicted across-the-board drawdowns from crude and product inventories.
The U.S. Energy Information Administration (EIA) published official inventory data on Wednesday. The data were aligned with the API numbers. EIA statistics showed drawdowns of 4.689 mmbbls from crude oil inventories and 4.583 mmbbls from gasoline inventories, and an addition of 1.388 mmbbls to diesel inventories. The EIA net result was an inventory drawdown of 7.884 mmbbls. Crude oil inventories have expanded in 21 of the 33 weeks since the first week of January, sending a total of 80.8 mmbbls of crude oil into storage.
During the worst of the oversupply, the EIA reported that crude oil in storage at Cushing rose from 35,501 barrels during the week ended January 3, 2020, to 65,446 barrels during the week ended May 1, 2020, an increase of 29,124 barrels. Cushing stocks fell to 45,582 mmbbls during the week ended June 26. However, the downward trend was reversed in July through early August, sending Cushing stocks are back up to 53,289 mmbbls during the week ended August 7. The current week ended August 21 brought Cushing stocks down to 52,403 mmbbls.
During the week ended August 14, U.S. crude production rose by 0.1 mmbpd to reach an average of 10.8 mmbpd. According to the EIA, U.S. crude production averaged 13.025 mmbpd in February, the highest total ever. Production fell to 12.25 mmbpd in April, 11.52 mmbpd in May, and 10.9 mmbpd in June. Production in July rose to an average of 11.04 mmbpd. The decline to 10.7 mmbpd during the first half of August may signal the coming of a more serious decline, which could cause higher prices. The EIA reported that U.S. crude production fell 21.9% between December 2019 and May 2020.