Oil Price Fundamental Daily Forecast – Mute Response to Hurricane, EIA Draw Highlights Demand Issues

U.S. West Texas Intermediate and international-benchmark crude oil futures are trading steady-to-lower on Thursday as a massive Category 5 hurricane in the Gulf of Mexico made landfall overnight in the center of the U.S. oil industry, forcing major producers to shut down oil rigs and refineries.

Hurricane Laura made landfall early on Thursday in southwestern Louisiana as a category 4 storm, one of the most powerful to hit the state, with forecasters warning it could push a wall of water 40 miles inland from the sea.

At 12:11 GMT, October WTI crude oil futures are trading $43.05, down $0.34 or -0.78% and December Brent crude oil is at $46.31, down $0.27 or -0.58%.

As the storm approached, oil producers shut 1.56 million barrels per day (bpd) of crude output, or 84% of the Gulf of Mexico’s production, evacuating 310 offshore facilities.

At the same time, refiners that convert nearly 2.33 million bpd of crude oil into fuel, and account for about 12% of U.S. processing, halted operations.

U.S. Energy Information Administration Weekly Inventories Report

On Wednesday, the EIA reported a crude oil inventory draw of 4.7 million barrels for the week to August 21. At 507.8 million barrels, oil inventories are 15 percent above the five-year average for this time of the year. Analysts had expected an inventory draw of 3.833 million barrels for the week to August 21.

In gasoline, the EIA estimated an inventory draw of 4.6 million barrels, compared with a decline of 3.3 million barrels a week earlier that sparked hopes the excessive supply of gasoline was being drained by recovering demand for fuels. Gasoline production last week averaged 9.5 million bpd, up from 9.4 million bpd in the previous week.

In distillate fuels, the EIA reported an inventory increase of 1.4 million barrels, after a modest build of 200,000 barrels a week earlier. Distillate fuel production rose last week, to 5.1 million bpd, compared with 4.7 million bpd a week earlier.

Refineries processed 14.7 million bpd of crude oi last week after run rates fell to 14.5 million bpd during the previous week. This week the numbers would likely be even lower as hurricane Laura forced the shutdown of several facilities on the Gulf Coast.

Daily Forecast

This week’s hurricane threat has been enough to underpin prices, but not enough to trigger the upside breakout that some traders have been betting on. Nonetheless, the crude oil prices did hit a new five-month high on Thursday and are in a position to close higher for the week.

If anything, the price action this week only highlights the low demand that continues to cap gains.

For a look at all of today’s economic events, check out our economic calendar.