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Crude oil slumps nearly 3% as oversupply jitters resurface

CommoditiesAug 28, 2017 02:50PM ET
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© Reuters. – Crude futures settled lower on Monday, as Tropical Storm Harvey continued to disrupt refinery activity along the U.S. Gulf coast, adding to fears of an uptick in crude oil supplies.

On the New York Mercantile Exchange crude futures for October delivery fell 2.7% to settle at $46.57 a barrel, while on London's Intercontinental Exchange, Brent lost 1.44% cents to trade at $51.23 a barrel.

Crude oil made a negative start to the week as flooding caused by the storm forced refiners in the Gulf of Mexico region to shutdown, sparking concerns over an excess in crude oil supplies, the primary input at refiners.

It is estimated that approximately 331,370 barrels of oil per day (bpd), or 18.94%, of the current oil production of 1,750,000 bpd in the Gulf of Mexico has been shut-in, according to an update from the Bureau of Safety and Environmental Enforcement on Monday.

While the storm is also expected to disrupt crude oil production, analysts believe the impact of lower crude demand at refineries would outweigh the dip in crude oil production.

“The reduced inputs to those Gulf refineries will result in an increase in crude inventories," said Tony Headrick, energy market analyst at CHS Hedging, "That outweighs the outages in crude oil production from the storm.

The U.S. National Hurricane Center said floods caused by Tropical Storm Harvey were expected spread from Texas eastward to Louisiana, home to roughly 3.3 million bpd.

The sharp fall in oil prices comes amid a bearish period for crude futures, which slumped to a fourth-straight weekly loss last week, as investors continued to question Opec’s commitment to the global pact to curb production.

An Opec meeting on compliance last week, failed to yield any tangible measures to address the group’s waning compliance with the deal to curb output.

Crude oil slumps nearly 3% as oversupply jitters resurface

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