TOKYO—U.S. crude futures fell in early Asian trading on Sept. 1, partly reversing sharp gains from the previous session, amid ongoing turmoil in the oil industry with nearly a quarter of U.S. refining capacity offline.
U.S. West Texas Intermediate (WTI) was down 27 cents, or 0.6%, at $46.96 barrel. The contract settled up 2.8% on Aug. 31.
The new Brent contract for November delivery was down 14 cents at $52.72 barrel. The contract for October delivery, which ended trading on Aug. 31, closed up $1.52, or 2.99%, at $52.38 a barrel.
U.S. 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 U.S. Labor Day weekend’s traditional surge in driving.
Gasoline for September delivery settled up 25.52 cents, or 13.5%, at $2.1399 on the last day of trading in the contract. Gasoline for October delivery was down 0.4% at $1.7724.
“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 at least 35 people and brought record flooding to the U.S. oil heartland of Texas, paralyzing at least 4.4 million barrels per day (MMbbl/d) of refining capacity, according to company reports and Reuters estimates.
The U.S. Department of the Interior’s Bureau of Safety and Environmental Enforcement said that roughly 13.5% of oil production in the Gulf of Mexico was also shut in on Aug. 31.
The U.S. government tapped its strategic oil reserves for the first time in five years on Aug. 31, releasing 1 million barrels of crude to a working refinery in Louisiana.
Traders were also scrambling to redirect fuel to the United States.
U.S. crude stocks fell sharply last week even as refineries hiked output in the run up to Harvey’s approach, the Energy Information Administration said on Aug. 30.
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.
Output from the OPEC in August fell 170,000 bbl/d from a 2017 high, a Reuters survey found, as renewed unrest cut supplies in Libya and other members stepped up compliance with their production-cutting deal with non-OPEC countries including Russia.
But market rebalancing may take longer than expected if production comes back in the United States and refiners cannot feed that output into flooded refineries.
“This hurricane has thrown a spanner in the works and rebalancing is delayed further than expected,” Nunan said.