The U.S. oil benchmark closed at a four-week high Wednesday, reflecting concerns about a potential hit to production from Hurricane Irma as well as renewed demand for crude as Gulf Coast refineries previously shut down by Hurricane Harvey reopened.
West Texas Intermediate U.S. crude oil for October CLV7, +0.22% rose 50 cents, or 1%, to close at $49.16 a barrel, the highest settlement since Aug.9. Brent crude LCOX7, +0.59% the global benchmark, gained 82 cents, or 1.5%, to end at $54.20 a barrel, its highest close since April 18.
“Oil market participants have become used to tropical storms causing no lasting damage to the energy infrastructure. This may change now, prompting the market to price in something of an uncertainty premium. Many market participants viewed the latest fall in the WTI price as excessive in any case,” analysts at Commerzbank said in a note.
The upswing in crude prices marked a swift reversal from last week, when prices had languished in the wake of Hurricane Harvey. The storm knocked out more than 20% of U.S. refining capacity, cutting demand for crude and weighing on prices.
Refining capacity has since started to come back online, providing support for crude. That, however, is weighing on gasoline prices that rallied last week as refineries shut down and created a short-term shortage. Gasoline for October delivery RBV7, -0.60% fell 1.15 cents, or 0.7%, to $1.7595 a gallon.
At the same time, the market is preparing for potential disruptions to oil production in the Gulf of Mexico as the result of Hurricane Irma, which made landfall in the Caribbean earlier on Wednesday, and other brewing storms. If crude output is hindered by the new storms it would boost prices, the analysts said.
The Harvey-related refinery shutdowns are expected to have contributed to a build in crude-oil stocks and a fall in gasoline inventories when the Energy Information Administration provides its weekly update on Thursday morning.
Analysts surveyed by S&P Global Platts produced a consensus forecast for a 2.7 million-barrel rise in crude stocks, while gasoline inventories are expected to fall 4.2 million barrels. The survey found distillate stocks are expected to drop 1.9 million barrels while refinery utilization is expected to show a sharp fall of 7 percentage points.
In addition, inventories at Cushing, Okla., a storage hub that serves as the delivery point for Nymex crude futures, could see significant increases in the next few weeks as a result of Harvey, according to Geoffrey Craig, oil futures editor at S&P Global Platts.
Ahead of the EIA data, the American Petroleum Institute, an industry trade group, will provide its weekly inventory figures late Wednesday.
Oil prices also responded positively to suggestions Tuesday by the Russian energy minister, Alexander Novak, that Russia and Saudi Arabia would be open to extending their output cut agreement.
“The strong cooperation of the leading oil producers in combating the ‘oil glut’ is making market participants hopeful that stocks may be quickly reduced, which is boosting the price rise,” the Commerzbank analysts said.
The Organization of the Petroleum Exporting Countries — of which Saudi Arabia is the largest member — and 10 producers outside the cartel, including Russia, first agreed late last year to cap production at around 1.8 million barrels a day lower than peak Oct. 16 levels, with the aim of reining in the global oil glut and sending prices higher.
The deal, which was extended in May until March 2018, has been undermined by falling compliance, growing U.S. output and an unexpected surge in production from Libya and Nigeria — two member states exempted from the agreement because their oil industries had been damaged by civil unrest.
Analysts said they were looking ahead to official U.S. data this week on crude inventory levels, which have fallen consistently in recent months, while cautioning that the information was likely to be less reliable than usual as a result of Harvey.
In other energy products, October natural gas NGV17, +0.60% rose 0.9% to end at $3 per million British thermal units. Heating oil futures HOV7, +0.05% rose 0.7%, to $1.7595 a gallon.
—Sara Sjolin contributed to this article.