For oil, bigger ill Harvey, not Irma

Hurricane Harvey, the storm that struck Texas more than two weeks ago, will remain a bigger concern for the oil market than Hurricane Irma which weakened Monday to a tropical storm, Goldman Sachs said.

While Irma, which made landfall in the Keys late Sunday as a Category 4 storm, will hurt oil demand, Harvey's damage is far greater, the bank's analysts including Damien Courvalin said in a note Monday. That's because Texas is home to twice the oil consumption per capita of Florida. Together, the storms will affect about 600,000 barrels a day in demand, according to the bank.

"We believe that Irma will have a negative impact on oil demand but not on oil production or processing," the analysts said. "Harvey's negative impact on demand will remain larger, however, given the large concentration of energy-intensive petrochemical activity in its path."

After Hurricane Harvey halted almost a quarter of the nation's refining capacity, crude prices in New York slumped as gasoline prices soared. While some oil processing has recovered, 6 percent of U.S. capacity still remains shut. The post-storm recovery will likely bring oil demand to a higher level, gradually offsetting the negative impact, Goldman Sachs said.

Irma's hit in demand will partly offset the Gulf Coast's interrupted refinery runs, which are taking longer than expected to recover, according to the bank. Still, on a net basis, U.S. crude inventory builds could grow to record levels with smaller production draws in the coming week, Goldman Sachs said.

"The recovery is well underway but the restarts are taking more time and, for some refiners, exposed more significant damage," the analysts said.

Irma, which initially hit the Keys in Florida with winds of 130 miles per hour, knocked out power to millions of Florida customers, paralyzed tanker traffic and shut about 6,000 gasoline stations. Harvey slashed refining capacity across Texas, forcing shutdowns of key refineries from Corpus Christi and Houston to Port Arthur, including the largest U.S. fuel-making plant.

"At this point, there is an expected hit to gasoline demand from Hurricane Irma in Florida, but we are hearing that the infrastructure isn't as bad off as feared," said John Kilduff, a partner at Again Capital LLC, a New York-based hedge fund, in a telephone interview.

[HURRICANE TRACKER: Follow Irma’s projected path]

West Texas Intermediate crude for October delivery rose 59 cents to settle Monday at $48.07 barrel on the New York Mercantile Exchange.

The price move higher also "reflects a little more confidence that the refiners are recovering," said James Williams, president of energy researcher WTRG Economics near Russellville. Still, the oil market may continue to chop around as there is some lingering uncertainty as to how much crude is actually being processed by these refiners, he said.

Members of the Organization of Petroleum Exporting Countries and other producers including Russia have pledged to reduce crude output by about 1.8 million barrels a day through March to trim global oil inventories and buttress prices. The producers are seeking to strengthen compliance with the reduction accord they reached last year.

Saudi Arabian Energy Minister Khalid Al-Falih agreed with his Venezuelan, Kazakh and UAE counterparts on Monday to keep all options open in their push to re-balance oil markets.

Al-Falih agreed in separate talks with the ministers in the Kazakh capital Astana that steps taken by OPEC and other major crude producers such as Kazakhstan have contributed to better market stability, according to three emailed statements from the Saudi energy ministry.

Saudi Arabia and Venezuela, both members of OPEC, agreed to consider prolonging production cuts "beyond the first quarter of 2018, if needed," the Saudi ministry said in one of the statements. The kingdom and Kazakhstan said such an extension "would be considered in due course as market fundamentals may dictate," according to a separate Saudi statement.

Information for this article was contributed by Sharon Cho, Wael Mahdi and Jessica Summers of Bloomberg News.

Business on 09/12/2017