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.
Crude -4.524mm (-4.3mm exp)
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)...
WTI closed at its highest for the front-month contract since early March...
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.