Crude oil prices extended the gains they’d made on Tuesday today as traders watched Hurricane Idalia approach the Gulf Coast and the American Petroleum Institute surprised the market with a massive inventory draw.
Idalia was forecast to reach Category 4 intensity by the time it made landfall in Florida by the National Hurricane Center, which said as of Tuesday it was a Category 2. Landfall is expected for later today.
Meanwhile, oil and gas operations in the Gulf are mostly business as usual except for three Chevron platforms where workers were evacuated because of the hurricane.
If more oil and gas producers have to evacuate and suspend operations, this would add a temporary upward pressure on prices as the Gulf accounts for 15% of U.S. oil production and 5% of oil production.
Floridians may experience fuel shortages after the hurricane makes landfall but it appears they would be largely isolated to the state.
Besides the hurricane news, the other driver for prices this week has been the API’s regular estimate of U.S. oil inventories, which this week showed a substantial draw of almost 11.5 million barrels for the week to August 25.
Analysts had expected a much more modest draw, of 2.9 million barrels and if the EIA confirms the API’s figures today, this would be even more bullish for oil, suggesting resilient strong demand for fuels.
As a result of this combination of factors, Brent crude was once again trading at over $85 per barrel and West Texas Intermediate was changing hands at over $81 as of late morning trade in Asia today.
The upside potential for oil prices is seen strengthening next month when analysts expect Saudi Arabia to extend its voluntary production cuts for another month while raising official selling prices for Asian buyers under long-term contracts.
By Irina Slav for Oilprice.com
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