Experts predict that the glut in crude will worsen as disasters dampen demand
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Add oil to the list of sectors slammed by Harvey and Irma.
As immense swaths of the southern US have been paralysed by the hurricanes, energy demand from consumers and refiners is expected to go down and exacerbate a global crude-supply glut, according to the Wall Street Journal.
With drilling projects ongoing and crude storage levels still high, analysts say millions of barrels of oil will be added to oil caverns and floating tankers. In effect, efforts by producers such as the Organization of Petroleum Exporting Countries (OPEC) to rebalance the market through supply cuts will be challenged further. US crude prices have not gone more than a day above US$50 since May.
Thomas Pugh, a commodities economist at Capital Economics, has said he expects the impact of the two storms to exceed that of Hurricane Katrina in 2005. In the three months following Katrina, there was a 2% decline in total US oil demand compared to a year earlier.
US prices fell after Harvey hit the eastern coast of Texas and shut down more than 20% of the refining capacity in the US. Demand concerns were alleviated last week as refiners close to the Gulf Coast planned restarts. Gasoline prices, meanwhile, are still elevated as the effects of refinery outages and a compromised gasoline-distribution chain persist.
Steady crude inventory declines through July and August are predicted to be wiped out. Analysts from Goldman Sachs estimate an addition of 40 million barrels to inventories a month after Harvey, which would drive up stockpiles to almost 500 million barrels.
But there’s still hope for rebalancing if refiners are able to get back online more quickly than expected. Some analysts are also doubtful that the oil market will suffer any long-term effects from the hurricanes.
“It’s definitely not good news in the short term,” Ed Morse, global head of commodities research at Citigroup, told the Journal. “[But] in the end, it’s probably the case that supply and demand are balancing themselves out.”
For more of Wealth Professional's latest industry news, click here.
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As immense swaths of the southern US have been paralysed by the hurricanes, energy demand from consumers and refiners is expected to go down and exacerbate a global crude-supply glut, according to the Wall Street Journal.
With drilling projects ongoing and crude storage levels still high, analysts say millions of barrels of oil will be added to oil caverns and floating tankers. In effect, efforts by producers such as the Organization of Petroleum Exporting Countries (OPEC) to rebalance the market through supply cuts will be challenged further. US crude prices have not gone more than a day above US$50 since May.
Thomas Pugh, a commodities economist at Capital Economics, has said he expects the impact of the two storms to exceed that of Hurricane Katrina in 2005. In the three months following Katrina, there was a 2% decline in total US oil demand compared to a year earlier.
US prices fell after Harvey hit the eastern coast of Texas and shut down more than 20% of the refining capacity in the US. Demand concerns were alleviated last week as refiners close to the Gulf Coast planned restarts. Gasoline prices, meanwhile, are still elevated as the effects of refinery outages and a compromised gasoline-distribution chain persist.
Steady crude inventory declines through July and August are predicted to be wiped out. Analysts from Goldman Sachs estimate an addition of 40 million barrels to inventories a month after Harvey, which would drive up stockpiles to almost 500 million barrels.
But there’s still hope for rebalancing if refiners are able to get back online more quickly than expected. Some analysts are also doubtful that the oil market will suffer any long-term effects from the hurricanes.
“It’s definitely not good news in the short term,” Ed Morse, global head of commodities research at Citigroup, told the Journal. “[But] in the end, it’s probably the case that supply and demand are balancing themselves out.”
For more of Wealth Professional's latest industry news, click here.
Related stories:
As oil prices stay flat, producers call for action
Are Canadian investors ready to give up oil?
