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Crude Oil Prices Hit Near 6-Month High as Hurricane Laura Shuts Refineries

CommoditiesAug 25, 2020 09:35AM ET
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© Reuters.

By Geoffrey Smith 

Investing.com -- Crude oil prices hit their highest level in nearly six months on Tuesday as Hurricane Laura threatened to bear down on refineries in East Texas and Louisiana.

By 9:15 AM ET (1315 GMT), U.S. crude futures had popped 1.9% higher to $43.44 a barrel, having earlier risen as high as $43.56, its highest since the first week of March. The global marker Brent was up by 1.6% at $46.39 a barrel, lagging due to the localized nature of the threat to supplies.

Gasoline RBOB Futures, meanwhile, leaped another 3.8% to $1.4185 a gallon, also a six-month high.

Laura, which was upgraded to Hurricane designation overnight by the National Hurricane Center, is expected to make landfall somewhere on the Gulf Coast by Wednesday evening, local time.  

Refiners on the coast have already reacted by shutting down operations in anticipation of potential flooding, prompted by memories of the apocalyptic scenes witnessed at the time of Hurricane Harvey three years ago.  

The Saudi Aramco-owned Port Arthur refinery, which can process over 600,000 barrels a day, has already shut down, while Total and Valero have also closed their East Texas refineries, according to Reuters, taking another 560,000 barrels a day of throughput capacity offline.

Nearly half of the U.S.’s refining capacity is based on the Gulf Coast. Over half of that had to close for some time during Hurricane Harvey and the disruptions to product markets lasted for weeks afterwards.

However, in stark contrast to 2017, the 2020 hurricane season is taking place against a backdrop of record-high U.S. gasoline stocks – over 243 million barrels at the Energy Information Administration’s last count – and demand that is still running 10% below last year’s levels.  

Barring a truly extreme disruption to supplies from the Gulf refineries, the market should easily be able to absorb any temporary shortfall by drawing down inventory.

The hurricane warnings are overshadowing what is likely to be the day’s other main event, the release of American Petroleum Institute stockpiles data at 4:30 PM ET. Analysts expect the government data to show another draw on crude stocks of 3.83 million barrels last week.

Crude Oil Prices Hit Near 6-Month High as Hurricane Laura Shuts Refineries
 

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Comments (2)
Jason Daniels
Jason Daniels Aug 25, 2020 1:42PM ET
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Why would shutting of refineries cause oil to go up? Yes gasoline should go up but not oil since you have less demand for raw crude from refineries unless it causes a bottle neck and production itself has to be curtailed due to a lower demand for raw feedstock.
Jay Trader
Jay Trader Aug 25, 2020 1:42PM ET
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Refineries shut down = less production. Less production will cause the price to go up and there is demand, look at the recent API and EIA reports
Alan Rice
Alan Rice Aug 25, 2020 1:33PM ET
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$40 oil !!! Road Trip !!
 
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