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Oil futures traded slightly lower Thursday, shrugging off one of the strongest hurricanes in years as it made landfall near the heart of the refining industry, after forcing the shutdown of much of the Gulf of Mexico’s oil and gas production.
West Texas Intermediate crude for October delivery CL.1, -0.32% CLV20, -0.32% was down 30 cents, or 0.7%, at $43.09 a barrel on the New York Mercantile Exchange. October Brent crude BRNV20, -0.32%, the global benchmark, declined 27 cents, or 0.6%, to $45.89 a barrel on ICE Futures Europe.
Hurricane Laura came ashore near the Texas-Louisiana border as a Category 4 storm after achieving sustained winds of around 150 miles per hour. The National Hurricane Center said Laura has since weakened to a Category 2 storm as it moves further inland over Louisiana.
The Interior Department’s Bureau of Safety and Environmental Enforcement late Wednesday estimated that 84.3% of current oil production in the Gulf of Mexico had been shut in, along with 60.94% of natural-gas production. Over 45% of total U.S. petroleum refining capacity is located along the Gulf Coast, according to the Energy Information Administration. Around 3 million barrels a day of U.S. refining capacity was closed or reduced, estimated JBC Energy, a Vienna-based consulting firm.
The response by oil prices to the hurricane and to data on Wednesday that showed large drops in U.S. crude and gasoline inventories has been “remarkably cool,” said Eugen Weinberg, analyst at Commerzbank, in a note.
Experience from past hurricanes shows that crude production can be ramped up quickly after a storm passes, while the refinery system can see a similar recovery, the JBC analysts wrote, though potential knock-on effects, including flooding that damages equipment, can hinder the recovery. Overall, they expect to see a further weakening of Gulf of Mexico crude prices relative to the cash price for WTI in Houston, a process that is already under way, according to media reports.
Product stocks, however, may fall in the near term, which could provide support for refining margins, they said.
Weinberg noted that the reaction to the hurricane has been more pronounced in the natural-gas market, even though only 5% of U.S. production is located in the region. The October contract NGV20, +1.70% was up 0.7% at $2.593 per million British thermal units, rising nearly 6% so far this week.
Natural-gas prices have been lifted because storms have hampered exports of liquefied natural gas, which has also contributed to a rise in European prices for the fuel, Weinberg said.
October gasoline futures RBV20, -2.01% were up 2% at $1.2382 a gallon, while October heating oil was off 1% at $1.2478 a gallon.
