Crude Oil Price Analysis for September 5, 2017

Crude oil prices moved higher on Monday, but with the U.S. markets close in observance of Labor Day, there was little volume. Prices have been weighed on by the lack of demand as nearly 25% of refining capacity in the United States has been halted by Hurricane Harvey. With a new Hurricane moving toward the United States, prices of crude oil could come under further pressure if more refining capacity is knocked out.

Technicals

Crude oil prices edge higher climbing slightly more than 0.5%, and recapturing short term support near the 10-day moving average at 47.24.  Resistance on crude oil prices is seen near a downward sloping trend line at 49.50. Momentum is neutral as the RSI (relative strength index) which is a momentum oscillator that measures accelerating and decelerating momentum, is printing a reading of 50, which is in the middle of the neutral range and reflects consolidation.

Harvey Wreack Havoc

In the aftermath of Hurricane Harvey, the most serious threat to the energy industry is the extended outage of refineries and pipelines. The problem looks worse than it did earlier as the deluge has shifted towards Port Arthur, another refining hub. Motiva, which runs the U.S.’ largest refinery in Port Arthur, began to completely shut down its 600,000 bpd facility on Wednesday.

Refinery shut downs, as of August 30, have spiked to 3.9 million barrels per day. More ports are now closed in addition to Corpus Christi and Houston, the ports of Lake Charles, Beaumont, and Port Arthur have shut down.  To help with the issue approximately 4.5 million barrels of oil have been released from the Strategic Petroleum Reserve  in response to Hurricane Harvey’s effect on national gasoline availability. Three million barrels of the reserves will reach Marathon Petroleum Corp and another 500,000 barrels per day will reach Valero Energy Corp. from the reserves at the Bayou Choctaw site. Another million barrels had already been approved for shipment.

Hurricane Harvey has knocked out major refineries along the Gulf Coast, with an estimated 3.04 million barrels per day of refining capacity was still offline in Texas. Valero’s refinery in Corpus Christi and Three Rivers are now back online.

Exports Remain Subdued

Saudi Arabia continued to further cut crude oil exports in August to 6.6 million barrels per day, bringing OPEC’s total for the month to 25.897 million barrels daily. All but five of OPEC’s members cut their daily shipments abroad. The notable exceptions were Algeria, Angola, Iran, Kuwait, and Nigeria. For Iran and Nigeria, August marked the highest daily export rate year-to-date. Despite the decline in OPEC crude oil exports, oil prices continue to falter, due to the lack of demand from U.S. refiners.

Iran led the increase with an additional 182,000 barrels per day versus July, to a total 2.698 million barrels per day exported in August. Kuwait upped its outbound shipments by 157,000 barrels per day to 2.135 million barrels per day. Algeria exported 147,000 barrels per day more in August than in July, at 668,000 barrels per day, and Angola exported 103,000 barrels per day more, at 1.763 million barrels per day. Nigeria increased its August exports by 102,000 barrels per day to 2.06 million barrels per day.

Saudi Arabia led the cutters’ camp, exporting 494,000 fewer barrels per day in August than in July, followed by Qatar, which reduced its foreign crude oil shipments by 208,000 barrels per day from July, to 732,000 barrels per day in August.

Libyan exports also fell, by 64,000 barrels per day to 813,000 barrels per day. Production at Sharara was suspended for quite a while last month. Yet, other terminals, namely Es Sider and Zueitina, loaded and will be loading more crude going forward, and these loadings will offset the declines in Zawiya.

While the latest sign that Saudi Arabia is indeed committed to doing whatever it takes to help the oil market rebalance should be a positive one for market participants, prices continue to be depressed. Compliance among OPEC members had risen to 89 percent and that also estimated OPEC crude oil output had fallen by 170,000 barrels per day in August. The precariousness of OPEC’s position was highlighted by the effects of Hurricane Harvey, which apparently provided enough of a counterweight to the positive potential of these figures.