U.S. crude stocks slip, refining runs up

Gasoline prices surged but crude oil prices were lower Monday morning as Hurricane Harvey continued to wreak havoc on Houston-area refining.

Motor fuel prices rose 4.2 per cent in NY, while WTI traded at the lowest level in five weeks.

Motiva Enterprises said Tuesday that its big refinery in Port Arthur, Texas, was dealing with restrictions in the flow of crude oil coming in and products like gasoline going out through pipelines and ports.

Nearly 3 million barrels of oil a day can't be refined into gasoline and other products - about 16% of US refining capacity, according to Goldman Sachs.

"We think the demand side of the fundamentals looks pretty good also: crude inventories in the USA dropped for eight consecutive weeks, gasoline inventory as a whole also dropped, and we're quite positive of emerging demand trends in Asia as well as parts of the Middle East, so that should be supportive of prices".

Refineries with output of 4.1 million barrels per day (bpd) were offline on Tuesday, representing 23 percent of USA production, Goldman Sachs said.

Refinery crude runs rose by 264,000 barrels per day, EIA data showed.

The Eagle Ford shale basin lies in the path of the storm and producers in the region have idled production.

The market was also waiting for data on US crude and refined product inventories. S&P Global Platts reports that two crucial pipelines servicing the Permian Basin - the BridgeTex and Longhorn pipelines - saw operations suspended, taking 650,000 bpd of takeaway capacity offline. The reserve was created to deal with an embargo by foreign crude suppliers, in the wake of the embargo imposed in the early 1970s by the Arab members of the Organization of the Petroleum Exporting Countries. The refineries have abandoned ship, taking offline almost 30% of the product produced in the United States. Target support on crude oil prices is seen near the July lows at 44 per barrel. The gasoline crack spread, a rough measure of the profit from refining crude into gasoline, climbed to US$20.84 a barrel. The U.S. has sizable stockpiles of oil, and the country's shale oil boom has helped build up reserves of crude. Apart from an even more tedious February, futures have traded in the tightest monthly range in more than a decade.

The aftermath of Harvey will continue to dominate markets in the short term, although the weak dollar will have a significant impact in cushioning prices and only limited further losses are likely.

In effect the storm has given OPEC and its allies, such as Russian Federation, some breathing space.

Vanessa Coleman