WTI Holds Near 6-Month Highs Amid Gulf Shut-Ins, Inventory Draws

Oil prices were higher today, driven in large part by significant shut-ins across the Gulf of Mexico. WTI traded back above $43.

As Bloomberg's Kriti Gupta details, the Gulf of Mexico is responsible for 17% of U.S. offshore oil production, 82% of which has been shut in preparation for the storm (up from 58% yesterday). So the simple explanation for rising crude is less production means less supply and higher prices.

It gets even thornier when you consider that 45% of total U.S. petroleum refining capacity also is located along the Gulf Coast.

This is unlikely to be reflected in any inventory/production data released this week.

API

  • Crude -4.524mm (-4.3mm exp)

  • Cushing -646k

  • Gasoline -6.392mm (-2.7mm exp) - biggest draw since April 2019

  • Distillates +2.259mm (-700k exp)

Analysts expected a fifth weekly crude draw in a row and a continuing trend of draws in Gasoline stocks also... API reported bigger than expected draws for Crude and Gasoline (with the latter's biggest drop in stocks since April 2019)...

Source: Bloomberg

WTI closed at its highest for the front-month contract since early March...

Source: Bloomberg

Oil was trading around $43.35 ahead of the print, and was little changed after the data.

"Markets know that the hurricane shut-ins are usually transient, and it's a bit too early to know whether the current ones will have a prolonged bearish effect on prices or not," said Bjornar Tonhaugen, head of oil markets at Rystad Energy, in a daily note. "Refineries might need to shut-in more runs due to flooding than upstream operators shut in crude supply," so weaker demand for crude at the refineries may help to offset price-bullish supply constraints.