Yesterday U.S. West Texas Intermediate crude jumped 2.56 percent, or $1.21 to close at a three-week high of $$48.515 as more U.S. refineries and pipelines restarted oil and fuel after Hurricane Harvey. It’s the fourth straight day to gain its value since Harvey disrupted about a quarter of U.S. refining capacity.
Hurricane Harvey terribly attacked the Gulf Coast in the previous week, which was covering almost a third of oil supply in the U.S., and shutting down a great amount of refineries, which slashs demand for gasoline and other fuel.
About 3 million barrels a day, or 16 percent of U.S. refining capacity, remained offline or in preliminary restart mode on Monday evening, according to Andy Lipow, president of Lipow Oil Association. That cut about 1.2 million gallons per day of gasoline supply, roughly equivalent to consumption in California, Oregon and Washington combined.
Refineries restarted to run in Corpus Christi, Texas, where Harvey made landfall as a Category 4 hurricane. Plants in Lake Charles, Louisiana, near Harvey’s second landfall last week, were also churning out fuel after partial cut-off in oil supply.
As some areas picked up the pieces from the devastation of Harvey, a new and even more powerful hurricane Irma, which strengthened into a Category 5 storm on Tuesday, was headed for the U.S. East Coast and Florida though. It likely wipes out amounts of gasoline demand if it hits the East Coast. Unlike the former Hurricane Harvey, Irma is not currently targeting at Gulf Coast refineries.
Demand for gasoline will typically drop between September and October, while business driven ground to a halt dragged its consumption by twice during Hurricanes Rita and Katrina in 2005 and Hurricanes Gustav and Ike in 2008.
That prompts an incentive for a Saudi- and Russian-led group of oil producers to extend their agreement to cut oil production beyond the first quarter of 2018, but having not reached a final agreement.
Even though OPEC’s agreement to cut the supply, which aims to shrink crude oil stockpiles and end more than three-year oversupply, weaker demand could make it harder to achieve that goal.
Technically the price of crude oil broke out the previous descending price channel for the second time after yesterday’s surge. The price is more likely to rise in next couple of days to touch Aug. 1’s high of 50.271, which can be seen as a key resistance ahead.
We can see that there is a reversal regarding to the price formation, beginning from late June, with pretty high RSI14 (Relative Strength Index) of 55.7011 as of 12:40 p.m. in Sydney. Moreover, it is also supported by a line connected by Jun 21 and Aug. 31’s lows.
Chart 1: WTICOUSD Daily
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