Investing.com – Crude futures settled modestly higher on Friday, but posted a weekly loss, as the shutdown of several refineries in the wake of tropical storm Harvey weighed on refinery activity reducing demand for oil.
On the New York Mercantile Exchange crude futures for October delivery rose 6 cents to settle at $47.29 a barrel, while on London's Intercontinental Exchange, Brent sank 27 cents to trade at $29 a barrel.
Exactly a week after Tropical Storm Harvey crossed the Gulf of Mexico off Port O'Connor, Texas, nearly a quarter of U.S. refining capacity has been taken offline, representing roughly 4.4 million barrels per day, weighing on demand for crude oil, the primary input at refineries.
More than 45% of the nation’s petroleum refining capacity is located along the Gulf Coast, as well as 51% of U.S. natural-gas, processing plant capacity, according to the EIA.
The devastating impact of the storm on oil infrastructure in the heartland of the U.S. energy industry, prompted the government to tap its strategic supplies and release 1 million barrels of crude oil to support refinery activity, as fears over fuel shortages remain front and center.
Fears of a fuel shortage come amid a surge in gasoline prices to two-year highs on Thursday, ahead of the Labor Day weekend, which usually sees an uptick in the number of drivers on the road.
Gasoline prices, however, retreated from two-year highs on Friday as two refineries began to restart, narrowing the ‘crack spread’ – the difference between crude oil and gasoline prices – from recent highs.
Falling crude prices have weighed on U.S. drilling activity over recent weeks, as data showed the number of U.S. oil rigs was unchanged from the prior week.
Oilfield services firm Baker Hughes said its weekly count of oil rigs operating in the United States remained steady at 759, unchanged from a week ago.
The weekly rig count is an important barometer for the drilling industry and serves as a proxy for oil production and oil services demand.
Market participant are likely to closely monitor the EIA’s report on crude inventories slated for Sept. 7, to assess whether the recent dip in crude demand will halt the nine-week trend of falling crude supplies.
“Next week’s EIA data should see large draws in products due to refinery outages, prompting large builds in oil inventories,” said John Macaluso, an analyst at Tyche Capital Advisors. About 1.4 million barrels of extra oil that “won’t be refined to fuels will be sent to storage as long as refineries are shut-in.”