Oil holds at five-month high as hurricane nears US Gulf coast

Oil held near a five-month high as Hurricane Laura bore down on key refining facilities on the US Gulf Coast, with forecasts saying it will strengthen rapidly into a "potentially catastrophic" Category 4 storm.

Futures in New York were steady after jumping 1.7% on Tuesday. The storm is expected to make landfall late Wednesday or early Thursday along the Texas-Louisiana coast, according to the National Hurricane Centre. More than 84% of oil output in the Gulf of Mexico has now shut, while almost 3 million barrels a day of refining capacity has been closed.

Prices also got a boost after the American Petroleum Institute reported US oil inventories fell by 4.52 million barrels last week and gasoline stockpiles shrunk by 6.39 million barrels, according to people familiar with the data. That would be the fifth straight weekly decline in crude supplies if the industry estimates are confirmed by official data due on Wednesday.

Laura has the potential to take some big refineries offline and disrupt global energy flows. On its current track, the storm could lead to around 10% to 12% of US refining capacity being shut for more than six months, according to a disaster modeller with Enki Research.

Tanker rates to ship gasoline from Europe to the US are already surging even before Laura makes landfall."Oil traders will be preoccupied with the developments of the hurricane today," said Tamas Varga, an analyst at brokerage PVM Oil Associates. "The most dangerous hurricane of the past 15 years is approaching the major US oil producing and refining centre."

Prices:

  • WTI for October delivery fell 8 cents to $43.27 a barrel at 10:59 a.m. in London
  • Brent for October settlement slipped 4 cents to $45.82. It traded above its 200-day moving average on Tuesday for the first time since January and closed at a five-month high
  • Nymex gasoline futures fell 0.6% to 138.75 cents a gallon

The hurricane will likely only have a short-term impact on global prices, however, with this year’s lackluster summer driving season nearing an end and a pickup in consumption remaining uncertain due to the pandemic.

Gasoline demand in key consuming nations appears stuck at about 10% to 15% below year-earlier levels, while jet fuel usage is much further behind.Brent’s front-month futures contract was trading at a discount of 39 cents to the second month.

This contango structure has narrowed sharply since the storm first appeared, as the shut-down of some US crude output makes supplies from outside of North America more valuable.

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