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Crude Gives Up Gains as Traders Assess Supply Position from Harvey

August 29, 2017

(Bloomberg) U.S. gasoline prices fell after five consecutive days of gains and crude traded below $47 a barrel as traders assess the risk to refineries and supply following flooding from Tropical Storm Harvey.

Motor fuel prices fell 0.7 percent in New York, while crude futures slipped from the lowest closing level in five weeks. Valero Energy Corp. and Citgo Petroleum Corp. were said to be preparing to restart their refineries in Corpus Christi after Harvey moved through over the weekend. The storm, which made landfall on Friday, is poised to regain strength before crashing ashore again near the Texas-Louisiana border on Wednesday.

Oil has lost almost 7 percent this month as investors weighed signs of rising global output against production cuts by some members of the  Organization of Petroleum Exporting Countries. Harvey has so far done more to dent crude demand than supply, shuttering about 2.35 million barrels a day of refining capacity. It’s now heading toward eastern Texas, home to Motiva Enterprises LLC’s Port Arthur refinery, the nation’s largest. While the storm has sent gasoline prices higher, the end of summer driving season is poised to reduce fuel consumption.

“It is a question of the market reassessing the risk to refineries while also concluding we are past the peak season in terms of demand,” said Ole Hansen, head of commodity strategy at Saxo Bank A/S in Copenhagen. “We are seasonally heading towards a lower demand period which means that any signs of things beginning to normalize could have quite a negative impact on prices.”

Gasoline for September delivery dropped as much as 1.23 cents to $1.70 a gallon on the New York Mercantile Exchange, and traded at $1.7005 at 11:32 a.m. London time. Prices added 2.7 percent on Monday after advancing to the highest price since July 2015.

West Texas Intermediate crude for October delivery fell 3 cents to $46.54 a barrel after dropping 2.7 percent Monday to $46.57. Brent crude slid 41 cents to $51.48 on the London-based ICE Futures Europe exchange. The global benchmark traded at a premium of $4.93 to WTI.

“Crude production is more of an issue because of those closed refineries, but prices still remain in a range and don’t look like breaking out,” said Jonathan Barratt, chief investment officer at Ayers Alliance Securities Ltd. in Sydney.

Flint Hills Resources LLC is planning to restart the Corpus Christi West refinery in Texas, according to a filing with regulators. The area near the Louisiana line has 1.65 million barrels a day of refining capacity, including Exxon Mobil Corp.’s Beaumont plant, according to Andy Lipow, president of Lipow Oil Associates LLC.

Oil-market news:

U.S. crude stockpiles probably declined by 2 million barrels last week, according to a Bloomberg survey before an Energy Information Administration report on Wednesday. Shale output may halt as a prolonged shutdown of refineries and pipelines limits transport options for crude. Iraq, OPEC’s second-largest producer, is considering plans to use a new reference price for oil sales to its biggest customers. Saudi Aramco may raise October Arab Light crude prices by 35 cents a barrels for sales to Asia, according to a median estimate in Bloomberg survey of six refiners and traders.

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