Crude Prices Plummet as Harvey Hammers Market

Crude prices plummeted on Tuesday as the market grappled with the shutdown of some 13% of refining capacity in the United States after a hurricane ripped through the heart of the country’s oil industry. International Brent crude futures were 42 cents lower at $51.47 per barrel, having traded as high as $52.19 earlier in the day. US West Texas Intermediate crude edged down 10 cents to $46.47 a barrel, after falling more than 2% in the previous session, CNBC reported

The refinery closures helped push US gasoline futures to a two-year high on Monday, although they receded on Tuesday.

The damage assessment could lead to more volatility. Some refineries were preparing for restarts, but heavy rains are expected to last through Wednesday, adding to catastrophic flooding in Houston.

“Refineries in Asia should run much harder to make up for (US closures), which is supportive for Brent,” said Olivier Jakob, managing director of oil analysis firm PetroMatrix.

Still, Jakob warned that the scale of US upstream outages was not yet clear and extensive damage on oilfields or pipelines could boost WTI prices.

Tropical Storm Harvey, which has been downgraded from a hurricane, hit oil refiners harder than crude producers.

“Around 2-3 million barrels per day of refining capacity is offline or in the process of shutting down ... (and) more than 500,000 bpd of oil production ... is offline,” Barclays bank said. It added that the storm’s impact would “linger for several more weeks”.

As a result, the discount of US WTI versus Brent surpassed $5 per barrel, its widest in more than two years.   Crude markets were also looking at disruptions in Libya and Colombia.

In Libya, militia pipeline blockades closed three oilfields and forced state-run National Oil Corp to declare force majeure at several sites. The 280,000-bpd Sharara field, the OPEC member’s largest, has been shut for around a week.

In Colombia, a bomb attack halted pumping operations along the country's second-largest oil pipeline, the 210,000-bpd Cano-Limon Covenas. Despite this, crude remains in ample supply, resulting in low prices.

"We are thus lowering our Brent oil price estimates to $55 per barrel from $60 per barrel in Q4 2017 (and) to $57 per barrel from $64 per barrel in 2018," Jefferies bank said.