WTI crude prices are testing above $48 this morning (and RBOB prices tumbling) as refiners and pipelines come back on line faster than expected and fears of Hurricane Irma’s path impacting Gulf production edge higher.
As Goldman notes, the recovery from Hurricane Harvey has accelerated over the weekend, with prolonged dry weather helping the decline in flood levels. We estimate that half of shut-in refinery capacity will likely be back online by Thursday, September 7.
Yet the corresponding level of outages of 2.0 mb/d remains elevated relative to the limited damages reported by both producers (0.3 mb/d currently offline) and midstream operators. With nearly all ports reopening, the key to a normalization in crude and petroleum product supply will, therefore, hinge on how long some refineries may be forced to stay offline, with guidance that at least 1.4 mb/d of capacity could still be offline past mid-September. In addition, curtailed NGL fractionation capacity could over time prevent and in fact reverse the recovery in shale production.
Additionally, concerns over the path of now Cat-5 Hurricane Irma are spooking energy markets as Goldman warns that RBOB prices could spike once again if Irma makes a violent landing on the Southern U.S. East Coast and Florida because the region is sparse on oil infrastructure and the effect of the storm would be mostly felt on demand instead, and other forecasters are fearful of Irma’s path progressing into the Gulf and affecting offshore production significantly.
“The potential for some U.S. onshore production curtailment and the likely demand recovery during the reconstruction suggest that the impact on the balance may become slightly positive after a few months,”Goldman concludes.
“Such an outcome would ultimately be supportive of U.S. oil demand.”
“Gasoline prices are stabilizing after a rally as concerns on Harvey start to fade,” Will Yun, commodities analyst at Hyundai Futures told Bloomberg. “However, uncertainties are creeping up on the demand outlook for the fuel as we marked the end of the summer driving season”
