Hurricane Harvey to Push Oil Inventories Higher

Historic flooding in the U.S. state of Texas is likely to make it harder for the Organization of Petroleum Exporting Countries (OPEC) to succeed in its bid to rebalance the market, analysts at Barclays said Tuesday in a research note.

Hurricane Harvey, which was later downgraded to a tropical storm, struck the coast of Texas on Friday causing widespread damage and flooding.

In the aftermath of what was the most powerful hurricane to hit a U.S. state in more than 50 years, several refineries in the Houston area were shut down while ports were closed to incoming and outgoing traffic.

Shares of Valero Energy, Phillips 66 and Marathon Petroleum all closed higher on Monday, on the back of news that several Houston-based refineries had been forced to halt production.

West Texas Intermediate graph

“In the coming weeks, we expect Hurricane Harvey’s impact to make it harder for OPEC to rebalance the market and maintain bullish sentiment,” Barclays’ analysts said.

“Disruptions to refineries, production and trade will also make the weekly Energy Information Administration (EIA) data even noisier and less useful as a high frequency indicator at the very time OPEC needs it most,” they added.

OPEC, Russia and other leading producers are slashing output by around 1.8 million barrels per day through to March 2018 in order to clear a supply overhang and support prices. OPEC and non-OPEC ministers are scheduled to meet on September 22 to discuss a possible extension to the cuts.

The refining capacity that has been idled by the storm is estimated to be about 11.2 percent of the U.S. total, according to a Reuters report, while the initial impact appears to be felt in gasoline prices.

Benchmark U.S. gasoline futures were little changed on Tuesday, having surged almost 7 percent on Monday to reach $1.7799 a gallon.

via CNBC

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Alfonso Esparza

Alfonso Esparza

Senior Currency Analyst at Market Pulse
Alfonso Esparza specializes in macro forex strategies for North American and major currency pairs. Upon joining OANDA in 2007, Alfonso Esparza established the MarketPulseFX blog and he has since written extensively about central banks and global economic and political trends. Alfonso has also worked as a professional currency trader focused on North America and emerging markets. He has been published by The MarketWatch, Reuters, the Wall Street Journal and The Globe and Mail, and he also appears regularly as a guest commentator on networks including Bloomberg and BNN. He holds a finance degree from the Monterrey Institute of Technology and Higher Education (ITESM) and an MBA with a specialization on financial engineering and marketing from the University of Toronto.
Alfonso Esparza