Oil Price Fundamental Daily Forecast – Gasoline Prices Soar on Crack-Spread Buying

U.S. West Texas Intermediate and international-benchmark Brent crude oil prices tumbled on Thursday, while gasoline futures surged nearly 3 percent in reaction to the possibility of refinery outages on the U.S. Gulf Coast.

Traders were buying refined products such as gasoline and selling crude oil, the primary feedstock at refineries. This move is known as crack-spread buying.

October WTI crude oil settled at $47.43, down $0.98 or -2.02% and November Brent crude oil finished the session down $0.58 or -1.11% at $52.24.

Traders are watching Harvey, a Category 1 hurricane, with 85 mph winds. According to reports, it could strengthen to a Category 3 hurricane with winds of at least 111 mph, which could send the price of gasoline up over 25 cents per barrel.

It’s a temporary event that could play with the inventories numbers for the next week or so.

Forecast

Crude oil prices are edging higher early Friday as the U.S. petroleum industries prepared for potential output disruptions as Hurricane Harvey headed for the heart of the nation’s oil industry in the Gulf of Mexico.

As of 0600 GMT, the storm is rapidly intensifying. Some weather services are calling it the biggest hurricane to hit the U.S. mainland in 12 years. The target zone is between Houston and Corpus Christi on the coast of Texas.

Gasoline prices rose sharply as production at the refineries in the affected area shut down in preparation for the hurricane. Some speculators are betting that the closures could last for a while if the storm causes extensive damage.

At this time, the forecast calls for the possibility of wind damage and flooding to refineries and shale fields. There is also the possibility of infrastructure damage. This could have a major effect on WTI prices.

The price action is currently suggesting the following.

If the refineries are shut down without any damage to infrastructure or oil fields then gasoline is likely to continue to rally and crude oil could weaken due to lower demand expectations.

If the refineries and oil fields receive substantial damage then gasoline and crude oil are both likely to spike higher.

Keep in mind that this is likely to be a short-term event but very volatile. Beyond the storm’s potential impact on the oil industry, crude remains in ample supply globally.