Crude oil prices rose slightly Thursday, contrary to the expectations of the Organisation of Petroleum Exporting Countries (OPEC), as oil traders focused more on Hurricane Harvey’s hit on oil demand than the impact on supply disruptions.
U.S. West Texas Intermediate (WTI) crude futures closed the month down eight per cent, their steepest monthly loss since July 2016.
However, the contract traded at $46.09 a barrel, up 13 cents Thursday, after falling more than one per cent on Wednesday.
International benchmark Brent crude traded at $51.22, up 36 cents from the previous session, when the contract fell on Wednesday.
Reuters reported that concerns had spread over falling demand in the world’s top oil consuming country after tropical storm Harvey knocked out almost a quarter of the refineries in Texas.
Harvey, which brought record flooding to the U.S. oil heartland of Texas and killed at least 35 people, has paralysed at least 4.4 million barrels per day (mbpd) of refining capacity.
However, for veteran OPEC officials, Hurricane Harvey’s impact on global oil markets was one of the strangest things they have seen, as the storm has led to some of the biggest disruptions to U.S. energy infrastructure, but failed to boost crude prices.
In contrast with previous major hurricanes such as Katrina in 2005, Harvey has actually seen oil prices edge down, as traders focused more on the hit to demand from damaged U.S. refineries than the blow to supply from knocked-out production.
Like Hurricanes Katrina or Gustav, when strong winds mainly caused damage to oil production, Harvey has also severely disrupted the U.S. refining industry and products pipelines, causing a spike in products prices.
This development is said to be frustrating for OPEC countries currently restricting oil supplies in an attempt to push prices higher.
United States’ biggest fuel transport system, the Colonial Pipeline, also said it would shut its main diesel, jet fuel and gasoline lines because of outages at its supply points.
The U.S. Energy Department said Thursday it would release 500,000 barrels of crude oil from the Strategic Petroleum Reserve, as Harvey’s disruption of the petroleum industry had spiked motor fuel prices.
Oil will be delivered to the Phillips 66 refinery in Lake Charles, Louisiana, which has not been affected by the storm that has hammered the U.S. gulf coast for several days.
The reserve, established in the early 1970s after the Arab oil embargo caused panics over fuel supply, currently contains 679 million barrels of oil. It is a small release of crude for a country that uses nearly 20 million barrels of petroleum products daily.
OPEC and several non-OPEC producers led by Russia had cut a combined 1.8mbpd from their output since the start of the year in the hope of bringing global oil and products stocks down to around 2.7-2.8 billion barrels from the current record-high of over 3 billion.
In the past two years, OPEC has restrained production to prop up prices, because the pain of cheaper barrels was putting too much stress on most members’ finances.
But the move has revived growth in the U.S. oil industry, with production and exports hitting new highs – until Harvey.