Oil Falls as Flooding Roils US

Crude futures fell on Friday, partly reversing sharp gains from the previous session, amid ongoing turmoil in the oil industry following Hurricane Harvey with nearly a quarter of US refining capacity offline.

US West Texas Intermediate was down 35 cents, or 0.7%, at $46.88 barrel. The contract rebounded 2.8% on Thursday but is still heading for a weekly decline of 2%. The new Brent contract for November delivery was down 21 cents, or 0.4%, at $52.65 barrel, CNBC reported.

The contract for October delivery, which ended trading on Thursday, closed up $1.52, or 2.99%, at $52.38 a barrel.

US gasoline futures have rallied more than 28% to a two-year high above $2 a gallon, buoyed by fears of a fuel shortage days ahead of the US Labor Day weekend’s traditional surge in driving.

Gasoline for September delivery settled up 25.52 cents, or 13.5%, at $2.13 on the last day of trading in the contract.

“It looks like everyone thinks that the hurricane will affect refining more than production,” said Tony Nunan, oil risk manager at Mitsubishi Corp. “Production will come back faster than refining so it is just going to exacerbate the situation where there’s too much oil.”

Hurricane Harvey has killed more than 40 people and brought record flooding to the US oil heartland of Texas, paralyzing at least 4.4 million barrels per day of refining capacity, according to company reports and Reuters estimates.

The US Department of the Interior’s Bureau of Safety and Environmental Enforcement said that roughly 13.5% of oil production in the Gulf of Mexico were also shut in on Thursday.

The US government tapped its strategic oil reserves for the first time in five years on Thursday, releasing 1 million barrels of crude to a working refinery in Louisiana. Traders were also scrambling to redirect fuel to the United States.

US crude stocks fell sharply last week even as refineries hiked output in the runup to Harvey’s approach, the Energy Information Administration said on Wednesday.

That should encourage OPEC and non-OPEC members that are trying to restrict supplies to boost prices that are about half the level of three years ago.