A category 1 storm in parts of the US has caused major disruption to oil production, entering a third consecutive week, creating a stockpile and a rise in crude oil to nearly $75 per barrel.
According to a report by Bloomberg, crude stockpiles are occurring nationwide in places like Cushing, Oklahoma, which is a major hub for storage. The New York Futures Exchange (NYFE) saw an uptick of 0.7%, following a 0.1 % fall on Monday. Meanwhile, Category 1 storm Michael is making its way towards Florida, after causing a shutdown of oil operations in the Gulf of Mexico, interrupting approximately 19 percent of production.
“The hurricane will provide a near-term fillip to crude prices, but the other and more worrying thing is the American inventory build-up, especially in Cushing,” said Stephen Innes, Asia Pacific analyst at trading corporation Oanda Corp in Singapore. “While the market wasn’t overly sensitive to the increase last week, this week could be different given the supply concerns back in the fore.”
With the possibility of an insecure supply, crude oil prices have increased by more than 20 percent this year alone. Several factors play a key role in this volatility. Sanctions placed by the US on exports from Iran are to be implemented by next month. Supplier countries like Libya and Venezuela have struggled with output disruptions, as the US experienced a pipeline bottleneck. US-China tensions and current trade war has also contributed to the instability. The two countries continue to disagree over various economic policies, with Secretary of State Michael Pompeo citing “fundamental disagreement” with Chinese peers during recent talks in Beijing.
The November delivery for West Texas Intermediate was at $74.83 per barrel, 54 cents higher at 2:45pm Singapore time, on the New York Mercantile Exchange. The contract fell by 5 cents on Monday to $74.29 per barrel. The total trade volume increased by around 15%, performing above the 100 day average.
Brent added 63 cents for an $84.54 tag on the ICE Futures Europe exchange for the December settlement. Also, for the same month, global benchmark of crude priced at $9.83 premium to WTI.
Michael, a category 1 hurricane, is expected to reach the Florida Panhandle at speeds of up to 129 mph. The storm’s effect is already impacting the energy sector, forcing evacuations on at least 10 platforms. In the Gulf of Mexico, several rigs have been moved from the path of damage, and and estimated 19% of oil production, as well as 11% of natural gas operations have been shut down.
Due to disruptions by Storm Michael, crude inventories in the US have risen by 2.8 million barrels the past week.
Inventories for American crude were up by 2.8 million barrels last week, according to an analyst survey by Bloomberg. In Cushing, Oklahoma, the stockpile there alone has added on 800,000 barrels. This gain in crude inventories would now be in its third consecutive week.