On Friday, oil prices eased after nearly a week of steep increases as Hurricane Irma, one of the most powerful storms in a century, is steering towards Florida after ripping through the Caribbean.
Irma the second major hurricane to hit the U.S. in two weeks and has already seen 14 fatalities, wiping out whole islands. Its predecessor, Harvey, closed a quarter of U.S. refineries and 8% of U.S. oil production.
“Hurricanes can have a lasting effect on refinery and industry demand,” stated Eugen Weinberg, head of commodities research at Commerzbank in Frankfurt. “The impact of the forces of nature on U.S. oil production should not be overestimated – nor should their impact on demand be underestimated.”
Brent crude LCOc1 increased 16 cents at $54.65 a barrel by 1145 GMT, after earlier hitting its highest level since April at $54.80. U.S. light crude oil CLc1 dropped 0.14 cents at $48.95 barrel. Brent found some support from news that Saudi Arabia will trim oil supply allocations to its customers worldwide in October by 350,000 barrels per day (bpd).
U.S. crude prices dropped as a result of low refining activity following Harvey, which sharply cut demand for oil to process, traders reported.
Harvey’s impact was also felt in oil production. U.S. oil output dropped by nearly 8 percent, from 9.5 million barrels per day (bpd) to 8.8 million bpd, according to the Energy Information Administration (EIA). But the slowdown in refining and output should be temporary.
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“Most refineries are restarting and we expect a near-full recovery by month-end,” U.S. investment bank Jefferies stated.
Port and refinery closures amid the Gulf coast and harsh sea conditions in the Caribbean have also affected shipping.
“Imports (of oil) to the U.S. Gulf Coast fell to levels not seen since the 1990s,” ANZ bank reported.
It will take weeks for the U.S. petroleum industry to return to full capacity, analysts report. Hurricane Irma hit the Dominican Republic and Haiti on Friday, heading for Cuba and the Bahamas. It was anticipated to reach Florida by Sunday.
The U.S. National Hurricane Center (NHC) stated that Irma was a Category 5 hurricane, with wind speeds of 160-185 miles per hours. On Irma’s heels, Hurricane Jose is heading for the Caribbean Leeward islands, which have just been devastated by Irma, with wind speeds of 120 mph.