ehicles and RVs pass parked oil platforms as they are ferried away from Port Aransas, Texas, after a mandatory evacuation was ordered in preparation for Hurricane Harvey. | Photo Credit: AP
Oil prices rose on Friday as the U.S. petroleum industry braced for Hurricane Harvey, which has grown into what may become the biggest storm to hit the U.S. mainland in more than a decade. Harvey has rapidly intensified since Thursday, spinning into potentially the biggest hurricane to hit the U.S. mainland in 12 years. The hurricane is expected to make landfall along the coast of Texas between Houston and Corpus Christi.
U.S. West Texas Intermediate (WTI) crude futures were at $47.83 a barrel at 0703 GMT, up 40 cents, or 0.8% , from their last settlement. International Brent crude futures were at $52.53 per barrel, up 49 cents, or 0.9% , from their last close. Prices rose as production in the affected area shut down in preparation for the hurricane, and on expectations that closures could last if the storm causes extensive damage.
“Damage and flooding to refineries and shale fields, disrupted production in the Gulf of Mexico and infrastructure damage are unlikely to be bearish for WTI,” said Jeffrey Halley, senior market analyst at futures brokerage OANDA. Traders said U.S. imports could also be affected due to interrupted shipping.
U.S. gasoline prices have shot up by almost 10% since Wednesday to $1.73 per gallon, their highest level since April as refiners shut down in preparation to the storm. The Port of Corpus Christi, Texas, was closed to vessel traffic, a spokeswoman for the city’s Port Authority said on Thursday. Oil refineries in the city operated by Citgo Petroleum, Valero Energy Corp and Flint Hills Resources also began shutting down ahead of the storm.
Beyond the storm’s potential impact on the oil industry, crude remains in ample supply globally despite efforts led by the Organization of the Petroleum Exporting Countries (OPEC) to hold back production in order to prop up prices.OPEC, together with non-OPEC producers including Russia, have pledged to cut output by around 1.8 million barrels per day (bpd) this year and during the first quarter of 2018.
However, not all producers have lived up to their pledges and supplies remain high, resulting in the ongoing low prices. A joint OPEC, non-OPEC monitoring ministerial committee said on Thursday that an extension to the supply-cut pact beyond March was possible, though not yet decided.
The reason for the crude glut has partly been due to rising U.S. production, which has jumped by 13% since mid-2016 to 9.53 million bpd, close to its 9.61 million bpd record from June 2015. Because of soaring U.S. output, the discount of WTI crude to Brent on Friday rose to its widest in almost two years at 4.69 per barrel.
Deeply discounted WTI makes U.S. crude exports attractive, and Thomson Reuters Eikon data shows shipments to Asia and Europe hit a combined record of over 450,000 bpd during the first half of the year.