Domestic crude oil prices settled lower on Tuesday in the wake of Hurricane Harvey as Brent crude posted a jump to separate the two benchmarks by more than $5 a barrel, according to Bloomberg MarketWatch.
October WTI crude fell 13 cents, or 0.3%, to settle at $46.44 a barrel on the New York Mercantile Exchange.
On the ICE Futures Europe exchange, October Brent oil, the global benchmark, rose 11 cents, or 0.2%, to end trading at $52 a barrel. Brent crude wasn’t hit as hard by the Gulf weather disruption on Monday because it is expected that the U.S. will demand more oil from Europe as its own production and refining gets back up to speed. The spread between WTI and Brent is now above $5 for the first time in two years.
The moves for oil came as flooding and rain in the aftermath of Hurricane Harvey continued to buffet Texas with once-in-a-generation flooding. The storm is already estimated to have reduced refining capacity in the area by more than 2 million barrels a day, boosting gasoline prices to their highest in more than two years, but adding pressure on U.S. crude.
“While production of crude oil has been hampered by the storm, the refinery shut-ins have crimped demand for oil,” said Nitesh Shah, director and commodities strategist at ETF Securities.
“The fact that U.S. Gulf Coast refinery capacities of approximately 2.5 million barrels per day are out of action because of Hurricane Harvey is weighing on WTI,” said analysts at Commerzbank. “By contrast, the oil production outages in the Gulf of Mexico and at the Eagle Ford shale play amount to less than 1 million barrels per day.”
“What is more, oil production is likely to be ramped up more quickly again than crude oil processing,” they added. “Further heavy rainfall is expected on the Gulf Coast until the end of the week. The flooding will thus continue for some time to make it difficult for refinery operation to be resumed, for damage to be assessed and for essential repair work to be carried out.”
The energy market will get an update on weekly U.S. petroleum supplies from the American Petroleum Institute late Tuesday and the Energy Information Administration early Wednesday.
“We will see the impact of some early closures ahead of the storm” since the data covers the week ended Aug. 25, said Phil Flynn, senior market analyst at Price Futures Group. “We are expecting big draws across the board for oil and products.”
Analysts polled by S&P Global Platts expect a fall of 1.5 million in crude supplies, a decline of 1.9 million for gasoline stockpiles and a drawdown of 600,000 barrels for distillates.
Back on the New York Mercantile Exchange, September natural gas rose 3.6 cents, or 1.2%, to settle at $2.961 per million British thermal units on the contract’s expiration day.