Oil prices steadied on Friday after almost a week of sharp rises as Hurricane Irma, one of the most powerful storms in a century, drove towards Florida after tearing through the Caribbean.
Irma is the second major hurricane to approach the United States in two weeks and has already killed 14, flattening whole islands. Its predecessor, Harvey, shut a quarter of U.S. refineries and 8 percent of U.S. oil production.
“Hurricanes can have a lasting effect on refinery and industry demand,” said Eugen Weinberg, head of commodities research at Commerzbank in Frankfurt. “The impact of the forces of nature on U.S. oil production should not be overestimated nor should their impact on demand be underestimated.”
Baker Hughs reported Friday the number of U.S. oil drilling rigs declined by 3 to 756, the third drop in four weeks.
U.S. West Texas Intermediate light crude oil settled down 3.28 percent, or $1.61, at $47.48.
Brent found some support from news that Saudi Arabia will cut crude oil allocations to its customers worldwide in October by 350,000 barrels per day (bpd). U.S. crude fell as a result of low refining activity following Harvey, which sharply reduced demand for crude oil, refining’s lifeblood, traders said.
Harvey’s impact was also felt in oil production. U.S. oil output fell by almost 8 percent, from 9.5 million barrels per day (bpd) to 8.8 million bpd, according to the Energy Information Administration (EIA).
But the slowdown in refining and output should be temporary.
“Most refineries are restarting and we expect a near-full recovery by month-end,” U.S. investment bank Jefferies said.
Port and refinery closures along the Gulf coast and harsh sea conditions in the Caribbean have also impacted shipping.
“Imports of oil to the U.S. Gulf Coast fell to levels not seen since the 1990s,” ANZ bank said.
It will take weeks for the U.S. petroleum industry to return to full capacity, analysts say.
Hurricane Irma hit the Dominican Republic and Haiti on Friday, heading for Cuba and the Bahamas. It was predicted to reach Florida by Saturday.
The U.S. National Hurricane Center (NHC) said that Irma was a Category 5 hurricane, with wind speeds of 160-185 miles per hours (260-295 km/h).
On Irma’s heels, Hurricane Jose is heading for the Caribbean Leeward islands, which have just been devastated by Irma, with wind speeds of 120 mph (195 km/h).