Analysis by Dr. Nancy Yamaguchi

 

WTI crude prices opened above $49/b for the second day in a row, though the post-Hurricane Harvey price rally now appears to have flattened. Not all refineries have come back onstream, keeping demand for crude at a subdued level. Nonetheless, the week is on track to end with crude prices in the black; Tuesday’s market opened with WTI at $47.28/b, and prices currently are in the $48.75-$49.00/b range.

Hurricane Irma hit the Caribbean yesterday as a class-5 storm with wind speeds up to 175 miles per hour. The hurricane left a swathe of fatalities and destruction. The Prime Minister of the two-island nation of Antigua and Barbuda declared Barbuda to be “barely habitable,” with 95% of the buildings damaged. The storm also battered the British Virgin Islands. The eye of the storm passed north of Puerto Rico Thursday, but the storm was still powerful enough to leave over a million people without power.

Today, Hurricane Irma was downgraded to a class 4 hurricane, with top winds slowing to 150 miles per hour. The hurricane is forecast to hit the Bahamas and Turks and Caicos today. It is projected to hit southern Florida on Sunday. Mandatory evacuation was ordered for the Florida Keys, and approximately 650,000 people were instructed to evacuate Miami-Dade, the largest evacuation ever attempted there. Meteorologists say that the timing of Irma’s projected turn toward Florida will be critical in terms of damage. Under worst-case modeling scenarios, Hurricane Irma could be even more destructive than Hurricane Andrew in 1992.

Two other hurricanes are evolving in the Atlantic. Hurricane Jose is forecast the skirt the Lesser Antilles in the Caribbean this weekend, hopefully veering to the north over open water. Hurricane Katia, a smaller storm system, is forecast to hit Mexico’s coast on Saturday. Mexico is reeling this morning from a magnitude 8.2 earthquake, which hit last night off the coast of Chiapas. Mexican President Enrique Peña Nieto stated that the earthquake was the strongest to hit the country in a century.

The Energy Information Administration (EIA) has released official supply and demand for the week ended September 1st, with a one-day delay because of the Labor Day holiday. The EIA reported a 4.85-mmbbl increase in U.S. crude oil inventories. This exceeded the expectation of the American Petroleum Institute (API,) which noted a crude inventory build of 2.791 mmbbls. The EIA data closely matched the industry survey, which predicted a build of 4.022 mmbbls.

The EIA also reported significant draws on product inventories, as was expected because of the refinery outages. Gasoline inventories were drawn down by 3.199 mmbbls, and diesel inventories were drawn down by 1.396 mmbbls.

The U.S. market has been thrown into disarray by Hurricane Harvey and the approach of Hurricane Irma. The weekly supply data may be subject to revision. For the week ended September 1st, U.S. crude production was reported to have plummeted by 749 kbpd, falling from 9530 kbpd during the week ended August 25th to 8781 kbpd during the week ended September 1st.

Refiner net input of crude oil collapsed by 3253 kbpd. Apparent demand for refined petroleum products dropped sharply by 1473 kbpd, including a drop of 683 kbpd of gasoline and 399 kbpd of jet fuel. Diesel demand rose by 153 kbpd.

WTI crude opened at $49.09/b this session, down slightly by $0.05 from yesterday’s opening. Currently this morning, WTI prices are $49.07/b, down by $0.02 since today’s opening. The daily price range has been $48.73-$49.26/b.