Crude little changed despite massive US output disruption

SINGAPORE (ICIS)–Crude prices were mixed on Thursday afternoon as concerns about pandemic-hit demand appear to be overshadowing the massive production shut-ins in the US Gulf ahead of Hurricane Laura’s landfall.

Hurricane Laura has intensified into a Category 4 storm and is expected to hit the southwest Louisiana coast later on Thursday.

In early afternoon trade, Brent crude futures made modest gains while WTI prices edged slightly lower.

Crude	Contract month	Low	High	Open	Prices at 12:17 pm (04:17 GMT)	Change
Brent	Oct	45.65	45.79	45.70	45.74	+0.10
WTI	Oct	43.25	43.50	43.45	43.36	-0.03

A larger-than-expected 4.69m-barrel decline in US crude stocks as per the Energy Information Administration (EIA) report also failed to significantly lift prices.

US crude stocks remain at 507.8m barrels, still significantly above their five-year average.

High inventory levels for both crude and oil products due to the adverse effect of the coronavirus on fuel demand is expected to cushion the impact of Hurricane Laura on supplies of both crude and refined products.

Nevertheless, crude remains close to its highest levels since early March this year with producers in the Gulf of Mexico having shut-in 84% of the regions total output – equivalent to 1.56m bbl/day – and evacuated over 300 offshore facilities.

Meanwhile, refiners along the US Gulf Coast have are in the process of shutting down some 2.9m bbl/day or around 15% of total US refining capacity.

“Although Hurricane Laura is incoming very fiercely, the market thinks its impact will be very short-lived as oil producers in the region are just temporarily pausing their operations for a few days,” said Li Li, head of ICIS crude and distillates analytics.

“People betting on upward prices may be more cautious on news about uncontrolled pandemic and negative impacts on oil demand. Therefore, the bullish message has been kind of ignored,” she said.

The coronavirus outbreak, which started in China late last year, has so far infected more than 23m people globally with death toll at above 800,000. The pandemic has plunged the world economy into a deep recession.

“In our crude prices forecast’s base case scenario, the prices may be lingering at current level for a couple of months,” Li said.

Asia is frequented by typhoons from June onward, and for China, the impact is mostly felt on port operations “as out offshore platforms account or a very small portion of upstream production”, she said.

Being a major energy consumer and importer, China benefits from relatively stable crude markets despite the massive output disruption in the US Gulf.

“It may be good to see WTI [West Texas Intermediate] prices don’t rebound so quickly as China just resume to import much more volume of US crude in Q3,” Li said.

Increased imports of US crude is part of China’s commitments under the two economic giant’s Phase-One trade deal.

Focus article by Pearl Bantillo and James Dennis

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