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

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

Commodities 5 minutes to read
Ole Hansen

Head of Commodity Strategy

Summary:  Crude oil and RBOB gasoline both trade close to a five-month high with the focus having moved from the pandemic impact on demand versus OPEC+ production cuts to the U.S. Gulf coast. Hurricane Laura look set to hit the U.S. coastline within the next 24 hours and the energy market nervously awaits the potential impact on refinery and other energy related assets.


What is our trading focus?

OILUKOCT20 – Brent Crude Oil (October)
OILUSOCT20 – WTI Crude Oil (October)
GASOLINEUSSEP20 - RBOB Gasoline (September)

____________________________________________________________________________________________________

Crude oil and RBOB gasoline both trade close to a five-month high with the focus having moved from the pandemic impact on demand versus OPEC+ production cuts to the U.S. Gulf coast. Hurricane Laura which has been upgraded to a potential catastrophic category 4 storm, is due to slam into the Texas and Louisiana coastline within the next 24 hours. While she undoubtedly will cause a great deal of damage, energy prices have so far reacted calmly to these developments.  

The Houston to Beaumont area holds a lot a refinery assets and during the past 24 hours the trajectory of the storm has moved further east which means that this, from an oil market prospective, important area will now be on the less violent left side of the hurricane.

According to reports more than 84% of oil output from the Gulf of Mexico has now been shut, while almost 3 million barrels/day of refinery capacity has been closed as well.

Source: Wunderground.com

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

Source: Saxo Group

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.

Source: Saxo Group

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

Quarterly Outlook

01 /

  • Equity outlook: The high cost of global fragmentation for US portfolios

    Quarterly Outlook

    Equity outlook: The high cost of global fragmentation for US portfolios

    Charu Chanana

    Chief Investment Strategist

  • Commodity Outlook: Commodities rally despite global uncertainty

    Quarterly Outlook

    Commodity Outlook: Commodities rally despite global uncertainty

    Ole Hansen

    Head of Commodity Strategy

  • Upending the global order at blinding speed

    Quarterly Outlook

    Upending the global order at blinding speed

    John J. Hardy

    Global Head of Macro Strategy

    We are witnessing a once-in-a-lifetime shredding of the global order. As the new order takes shape, ...
  • Asset allocation outlook: From Magnificent 7 to Magnificent 2,645—diversification matters, now more than ever

    Quarterly Outlook

    Asset allocation outlook: From Magnificent 7 to Magnificent 2,645—diversification matters, now more than ever

    Jacob Falkencrone

    Global Head of Investment Strategy

  • Macro outlook: Trump 2.0: Can the US have its cake and eat it, too?

    Quarterly Outlook

    Macro outlook: Trump 2.0: Can the US have its cake and eat it, too?

    John J. Hardy

    Global Head of Macro Strategy

  • Equity Outlook: The ride just got rougher

    Quarterly Outlook

    Equity Outlook: The ride just got rougher

    Charu Chanana

    Chief Investment Strategist

  • China Outlook: The choice between retaliation or de-escalation

    Quarterly Outlook

    China Outlook: The choice between retaliation or de-escalation

    Charu Chanana

    Chief Investment Strategist

  • Commodity Outlook: A bumpy road ahead calls for diversification

    Quarterly Outlook

    Commodity Outlook: A bumpy road ahead calls for diversification

    Ole Hansen

    Head of Commodity Strategy

  • FX outlook: Tariffs drive USD strength, until...?

    Quarterly Outlook

    FX outlook: Tariffs drive USD strength, until...?

    John J. Hardy

    Global Head of Macro Strategy

  • Fixed Income Outlook: Bonds Hit Reset. A New Equilibrium Emerges

    Quarterly Outlook

    Fixed Income Outlook: Bonds Hit Reset. A New Equilibrium Emerges

    Althea Spinozzi

    Head of Fixed Income Strategy

None of the information provided on this website constitutes an offer, solicitation, or endorsement to buy or sell any financial instrument, nor is it financial, investment, or trading advice. Saxo Capital Markets UK Ltd. (Saxo) and the Saxo Bank Group provides execution-only services, with all trades and investments based on self-directed decisions. Analysis, research, and educational content is for informational purposes only and should not be considered advice nor a recommendation. Access and use of this website is subject to: (i) the Terms of Use; (ii) the full Disclaimer; (iii) the Risk Warning; and (iv) any other notice or terms applying to Saxo’s news and research.

Saxo’s content may reflect the personal views of the author, which are subject to change without notice. Mentions of specific financial products are for illustrative purposes only and may serve to clarify financial literacy topics. Content classified as investment research is marketing material and does not meet legal requirements for independent research.

Before making any investment decisions, you should assess your own financial situation, needs, and objectives, and consider seeking independent professional advice. Saxo does not guarantee the accuracy or completeness of any information provided and assumes no liability for any errors, omissions, losses, or damages resulting from the use of this information.

Please refer to our full disclaimer for more details.

Saxo
40 Bank Street, 26th floor
E14 5DA
London
United Kingdom

Contact Saxo

Select region

United Kingdom
United Kingdom

Trade Responsibly
All trading carries risk. To help you understand the risks involved we have put together a series of Key Information Documents (KIDs) highlighting the risks and rewards related to each product. Read more
Additional Key Information Documents are available in our trading platform.

Saxo is a registered Trading Name of Saxo Capital Markets UK Ltd (‘Saxo’). Saxo is authorised and regulated by the Financial Conduct Authority, Firm Reference Number 551422. Registered address: 26th Floor, 40 Bank Street, Canary Wharf, London E14 5DA. Company number 7413871. Registered in England & Wales.

This website, including the information and materials contained in it, are not directed at, or intended for distribution to or use by, any person or entity who is a citizen or resident of or located in the United States, Belgium or any other jurisdiction where such distribution, publication, availability or use would be contrary to applicable law or regulation.

It is important that you understand that with investments, your capital is at risk. Past performance is not a guide to future performance. It is your responsibility to ensure that you make an informed decision about whether or not to invest with us. If you are still unsure if investing is right for you, please seek independent advice. Saxo assumes no liability for any loss sustained from trading in accordance with a recommendation.

Apple, iPad and iPhone are trademarks of Apple Inc., registered in the U.S. and other countries. App Store is a service mark of Apple Inc. Android is a trademark of Google Inc.

©   since 1992