Crude prices slipped lower on Tuesday as the market grappled with the shutdown of 13 percent of refining capacity in the United States after a hurricane ripped through the heart of the country’s oil industry.
The refinery closures helped to push U.S. gasoline futures to a two-year high of $1.7799 per gallon on Monday, though they had receded to $1.7466 by 1325 GMT on Tuesday, reports Reuters.
International Brent crude futures were down 7 cents at $51.82 a barrel, having traded as high as $52.19 and as low as $51.36 earlier in the day.
U.S. West Texas Intermediate (WTI) crude edged down 24 cents to $46.33 after falling more than 2 percent in the previous session and trading as high as $46.96 earlier in the day.
The damage assessment could lead to more volatility. Some refineries were preparing for restarts, but heavy rains are expected to last through Wednesday, adding to catastrophic flooding in Houston.
“Refineries in Asia should run much harder to make up for (U.S. closures), which is supportive for Brent,” said Olivier Jakob, managing director of oil analysis firm PetroMatrix.
Refineries in Europe and Asia were already gearing up to replace the lost oil products, while the International Energy Agency said it could release emergency oil stocks in the event of extended outages.
Still, Jakob warned that the scale of U.S. upstream outages is not yet clear and extensive damage to oilfields or pipelines could boost WTI prices.
Tropical Storm Harvey, which has now been downgraded from a hurricane, hit oil refiners harder than crude producers.
“Around 2-3 million bpd (barrels per day) of refining capacity is offline or in the process of shutting down … (and) more than 500,000 bpd of oil production … is offline,” Barclays bank said.
It added that the storm’s impact would “linger for several more weeks”. As a result, the discount for U.S. WTI versus Brent surpassed $5 a barrel, its widest in more than two years. Crude markets were also eyeing disruptions in Libya and Colombia.
In Libya, militia pipeline blockades closed three oilfields and forced state-run National Oil Corp to declare force majeure at several sites.
In Colombia, a bomb attack by the leftist ELN rebel group halted pumping operations along the country’s second-largest oil pipeline, the 210,000 bpd Cano-Limon Covenas.
Yet crude remains in ample supply, resulting in low prices, with Jefferies bank saying it is lowering its fourth-quarter Brent oil price estimates to $55 a barrel from $60 and its 2018 forecast to $57 from $64.