Crude oil: U.S. Gulf Coast in focus ahead of Laura’s landfall

The temporary closure of refineries leading to less supply of products, together with potential storm and flood damage, has given gasoline prices an 8% boost since Friday. So far today, however the price trades down 1% after hitting $1.40/gal overnight before the changed trajectory helped attract some profit taking. The price rally has been cushioned by two Covid-19 related developments. US motorist are using 10% less gasoline than a year ago while inventories remain some 15 million barrels or 6.5% above the five-year average.

Depending on developments over the next 24 hours, a post hurricane round of profit taking could see  the price retest the recent breakout zone just below $1.33/gal

WTI crude oil, up by less than 2% this week, has so far struggled to find a bid. While production from the Gulf of Mexico has been cut by more than 84% refinery demand has slumped by even more. With this in mind it is perhaps not that surprising to see WTI struggling to find a bid despite finally having broken above resistance at $43/b. So far the price has made it no further than $43.50/b, the early August high.

It highlights and in our opinion support the view that crude oil may struggle, at least in the short-term to rally much further. The pandemic is currently gathering momentum across Asia and Europe and while renewed lockdowns are unlikely, the impact on fuel demand is being felt. OPEC+ at the same time are struggling to reign in more than 2 million barrels/day from countries that have yet to reach agreed production targets.

A break below $43/b carries the risk of long liquidation taking the price lower towards $41/b and potentially as low as $38.5/b, the July 30 low.

Later today at 14:30 GMT the U.S. Energy Information Administration will release its ‘Weekly Petroleum Status Report’. A price supportive drop in both crude oil and gasoline stocks was reported by the American Petroleum Institute last night. But whether a confirmation from the EIA this afternoon will create additional market reaction remains doubtful given the current focus on Hurricane Laura and the discrepancies she will create in data over the coming weeks.

As per usual I will publish the results of the report on Twitter handle @Ole_S_Hansen