USA crude prices tumbled down more than 3 percent on Friday worries that energy demand would be hit hard as Hurricane Irma, one of the most powerful storms in a century, headed toward Florida and the Southeast.
On the eve of Irma's arrival in Florida and catastrophic wind speeds of 260-295 kilometres per hour expected, the question is: to what extent will the storm impact the energy industry? Jose, another storm has reached Category 4 status over the Atlantic Ocean, while Hurricane Katia is threatening to barrel into Mexico. For the week, oil prices, however, rose marginally on expectations the processing capacity debilitated by Hurricane Harvey and out of Irma's path of destruction has started to gradually come back on stream. At the height of that storm, some 4.2 million bpd, or almost 25%, of refining capacity, was idled.
Southern Gulf Coast states, meanwhile, continue to pick up the pieces from Harvey, which struck a central part of the US energy sector in late August. While Gulf Coast crude imports fell to the lowest in records going back to 1990 after Harvey, refineries, pipelines and offshore platforms are resuming operations. Meanwhile, the displacement of hundreds of thousands of people from both the hurricanes will also hit demand for oil.
US West Texas Intermediate (WTI) crude futures were at $48.98 barrel, 11 cents below their last settlement.
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Officials recommended residents check their mobile devices to make sure the emergency alerts feature has been activated. The second one, in Marco Island, was a Category 3 that left the island without water and power, authorities said.
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Similarly, Hurricane Irma could lead to a drop in crude oil refinery demand in the short term. "You can't be happier as an oil trader with that sort of margin".
Many U.S. Gulf Coast refineries were restarting, including the largest U.S. refinery.
WTI futures dropped more than 3% on Friday even as the number of oil rigs operating in the USA fell by three to 756, still remaining near the highest level since April 10, 2015, according to data from energy services firm Baker Hughes (BHGE), which tracked the seven-day period ended September 8. Brent is expected to average $52.50 per barrel for the year. The global benchmark crude traded at a premium of $5.26 to November WTI. There are a couple of different factors involved, as many traders had bet that hurricane Irma would cause disruptions.
Currently, Saudi Arabia is gathering support among the OPEC and some non-OPEC countries to extend the duration of the output-cut agreement because it is becoming evident that the oil market may not rebalance by the end of Q1 2018, senior energy analyst at Interfax Energy's Global Gas Analytics (GGA) in London Abhishek Kumar believes. A plan implemented by the Organization of Petroleum Exporting Countries in January to erase the surplus on the five-year average for global crude oil inventories through managed production declines helped put a floor under crude oil prices, but it's a shaky one. Iran has been producing about 3.8 million bpd in recent months. The Saudi commitment to OPEC cuts is 486,000 bpd.
Saudi Arabia will cut crude oil allocations to its customers worldwide in October by 350,000 barrels per day (bpd), an industry source familiar with Saudi oil policy told Reuters on Thursday.