logo-loader

All eyes on Harvey clean-up but longer term indicators positive for oil market

Published: 18:11 01 Sep 2017 BST

1504286747_oil-rig-worker-on-ladder

As the US cleans up after Hurricane Harvey, about a third of American refineries remain out of commission and consumers are paying a premium for gasoline.

In early trading on Friday, Brent crude was priced above US$52 with WTI holding around US$47 a barrel.

Shortlived and expensive..

The fallout from the hurricane will be most likely short lived and expensive.

Some pipelines carrying crude from the Permian basin have been closed but due to abundant stocks, the oil price stayed low. 

Brent lost about 4 percent this week and WTI fell 3 percent with some recovery at the end of the week.

“Oil prices fell in August, especially at the end of the month, due to refinery disruptions as a result of Hurricane Harvey,” said Jason Schenker, president of Prestige Economics.

More upside potential in 2018

The fall in price is expected to be temporary as he was expecting oil prices to rise in 2017, and said he expects "more upside potential in 2018 as global inventories rebalance".

The International Energy Agency has been consulting with the US government following its authorization of nearly a million barrels of crude from the Strategic Petroleum Reserve to a refinery in Louisiana.

The head of the IEA oil division, Neil Atkinson, said that availability of crude was not the concern, it’s the “difficulty in moving it around.”

The IEA also said that it believed the US had enough diesel and petrol inventory in place to handle the current situation. Meanwhile Asian and European tankers are on route to the US with extra supplies.

The spread between Brent crude and WTI has widened partly due to the impact of the hurricane in the southern states.

In a report from Capital Economics, American oil exports have increased by a third this year and low oil prices “are likely to encourage exports further boosting demand”. 

American oil stocks have been falling and this should ultimately put upward pressure on the WTI price. “Our end-2017 forecasts for Brent and WTI are US$57 per barrel and US$54 per barrel respectively.”

Increase in global demand, shrinking inventories

A Reuters survey of analysts expects a stronger oil price due to an increase in global demand growth and consistent shrinking inventories.

This is the first time in six months where 33 analysts and economists delivered such an optimistic verdict, projecting an average price for Brent for 2017 at US$52.53, with WTI expected to average just above US$50 a barrel.

Schenker from Prestige Economics has predicted a strengthening of the oil price before the year is out and is encouraged by the Purchasing Managers Index figures released for August. He says they “all conveyed expansions and accelerations, and were fundamentally strong.

The rise in the Chinese Caixin Manufacturing PMI is likely to prove supportive for oil prices and industrial metals prices during the month of September.”

Schenker has always maintained that growth in China was essential to future growth in global oil demand.

The focus for the next few weeks will be US recovery after the hurricane, but longer term positive indicators of growth will be welcomed news for the wider industry.

Oriole Resources outlines 2023 achievements and future exploration plans

Oriole Resources PLC (AIM:ORR) CEO Tim Livesey and chief financial officer Bob Smeeton join Proactive's Stephen Gunnion with details of the company's 2023 financial and operational performance. Livesey highlighted successful exploration programs in Cameroon, at the Bibemi and Mbe projects,...

1 hour, 28 minutes ago