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Short Term Demand Boosts Oil Market

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U.S. Fuel Prices Set for Volatile Summer

U.S. gasoline and diesel prices are set for a more volatile summer this year as an expected busier-than-usual hurricane season and extremely high temperatures could weigh on refinery production, analysts have told Reuters.

A higher number of named storms could lead to more refinery shutdowns on the U.S. Gulf Coast, which hosts more than 47% of total U.S. petroleum refining capacity, as well as 51% of total U.S. natural gas processing plant capacity.  

In addition, excessively hot summer temperatures along the Gulf Coast could also disrupt refinery operations as most processing facilities are designed to operate optimally at temperatures below 95 degrees Fahrenheit.

Potential refinery disruptions, either due to extreme heat or strong hurricanes, could send U.S. gasoline and diesel prices spiking during the summer driving season, according to analysts, who see the hurricane season as the biggest wild card for American fuel prices this summer.

Early on Monday, Beryl, which at one point was the earliest Category 5 hurricane on record, made landfall in Texas, bringing heavy rains and warnings of potential storm surge, flooding, and tornadoes. At the time of the landfall, Beryl was a Category 1 hurricane.

Earlier this year, the Energy Information Administration predicted up to 25 named storms this hurricane season, noting that “The potential for a stronger hurricane season suggests heightened risk for weather-related production outages in the U.S. oil and natural gas industry.”

Last year, the Atlantic hurricane season saw one out of 20 named storms hit land in the U.S.—none causing any severe disruption or damage to oil and gas industry installations.

This year, things may be different during the season, which starts on June 1 and runs until the end of November.

Adding to this could be extreme heat that could reduce Gulf Coast fuel production by 500,000 barrels per day (bpd), according to a note by JPMorgan analysts carried by Reuters.

Despite Beryl making landfall in Texas, oil prices were down early on Monday morning ET.

By Charles Kennedy for Oilprice.com

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