High US oil inventories, low demand await Laura: Update

Updates with latest EIA inventory data, recent storm information.

Hurricane Laura arrives on the US Gulf coast late today at a time of above-average crude and refined products inventories and pandemic-driven low energy demand — factors that may mute market reactions to one of the most powerful storms to hit the region in years.

Total US crude inventories fell in the week that ended 21 August but were 19pc higher than levels seen a year prior, before Covid-19-related travel and work restrictions led to a global recession. Stocks at the key storage hub of Cushing, Oklahoma, were nearly 30pc above year-prior levels.

Refined products stocks have spent much of the summer at unseasonably high levels but are coming closer to year-prior levels — gasoline stocks were just 3.1pc higher in the week ended 21 August than at the same time last year — and ultra-low sulphur distillate stocks were up by 26pc.

US fuel demand through last week has climbed closer to seasonal norms but was 7.5pc lower than year-prior levels. Gulf coast refineries were running 17pc lower than year-earlier levels, a situation that had already led some facilities to idle.

Mixed price signals

Nearly 84pc of Gulf of Mexico crude production has been shut in ahead of the storm, leading WTI crude futures to a five-month high of $43.35/bl yesterday and driving up some Louisiana crude grades earlier this week. But with 15.5pc of US refinery capacity off-line, a number of Gulf grades fell on the spot markets yesterday.

With the storm bearing down on a region with about 4.5mn b/d of refining capacity, US Gulf coast gasoline reached its largest premium to Nymex traded gasoline in nearly three years, or since heavy rainfalls that followed Hurricane Harvey in August 2017 inundated the region and took many refineries off line.

The resilience of the price movements will largely be depend on how long it takes for refiners and pipeline operators to resume operations once the fast-moving storm passes — possibly as soon as tomorrow afternoon. The National Hurricane Center says the storm may be a category 4 hurricane when it comes ashore later tonight, and is calling for "unsurvivable storm surge" as far east as Intracoastal City, Louisiana, bringing up to 10ft (3m) of water up waterways as much as 30 miles (48km) inland. This could be particularly challenging for refineries in the Lake Charles, Louisiana, area, as well in Beaumont-Port Arthur in southeast Texas.

Wind damage to power lines will also be a factor, particularly for pipelines that typically rely on the grid to run pumping stations and terminals. Hurricane Laura is expected to come ashore with sustained winds as high as 145mph (233 km/hour).