Oil Price Fundamental Daily Forecast – Traders Waiting for More Info on Length of Refinery Shutdowns

U.S. West Texas Intermediate crude oil prices continued to fall on Tuesday in response to lower demand due to refinery shutdowns in the wake of Hurricane Harvey. Refinery capacity is being adversely affected by severe, widespread flooding. There are reports that the largest refinery in the U.S. is currently operating at just 60 percent capacity. International-benchmark Brent crude oil held steady.

October WTI crude oil futures settled at $46.44, down $0.13 or -0.28% and November Brent crude oil closed at $51.66, up $0.24 or +0.47%.

According to CNBC, the largest crude oil refinery in the United States, operated by Motiva Enterprises, was shutting down on Tuesday night due to flooding from Harvey in its 603,000 barrel-per-day (bpd) Port Arthur plant in Texas.

Expectations of lower gasoline supply helped drive nearby futures to more than a two-year high.

Forecast

October WTI crude oil futures are trading slightly lower early Wednesday. The range is extremely tight. The price action suggests investors are waiting for news. Although there is a U.S. Energy Information Administration inventories report today, the primary focus remains on the storm damage in Texas and when the shutdown refineries will reopen.

U.S. inventories are increasing by an estimated 1.4 million barrels of oil per day because of the shutdowns. So the longer they are closed, the larger the supply grows and without an end of the shutdowns in sight, sellers are likely to continue to dominate the market.

Despite the potentially bearish fundamentals, it’s growing more difficult to keep shorting weakness. Although it is the right move, it’s also the riskiest because this market can turn on a dime if the news is favorable. Additionally, prices will eventually reach a balance point. The current price represents both actual inventory levels and a discount for future inventory levels if the shutdown persists.

I am assuming the market has priced in at least a 7 day shutdown. So if the shutdowns are forecast to go on for weeks, prices can fall off a cliff.

In other news, the American Petroleum Institute (API) reported a major draw of 5.78 million barrels in U.S. crude inventories, compared to analyst expectations of a draw of 1.75 million barrels for the week-ending August 25.

Gasoline inventories rose by 476,000 barrels for the week-ending August 25.

Today’s U.S. EIA inventories report is expected to show a draw of about 1.8 million barrels.