Oil prices rose more than 1 percent on Wednesday as strong global refining margins and the reopening of US Gulf Coast refineries provided a more bullish outlook after sharp drops due to Hurricane Harvey. But traders remained wary of Hurricane Irma, ranked as one of the five most powerful Atlantic hurricanes in the last 80 years, which was passing over the northernmost Virgin Islands on Wednesday afternoon and headed toward Florida at the weekend, raising concerns that it could knock out a major demand centre and cause more fuel shortages.
Brent had gained 82 cents to settle at $54.20 a barrel. US West Texas Intermediate (WTI) crude futures were up 50 cents at $49.16 a barrel. "Everyone is just grappling with the spate of storms that are populating the Gulf," said John Kilduff, a partner at Again Capital.
Many refineries, pipelines and ports that were shut due to Harvey 10 days ago are restarting. On Tuesday, about 3.8 million barrels per day (bpd) of refining capacity, or 20 percent of the US total, was shut. This compares with 4.2 million bpd at the height of the storm.
Phillips 66 began restarting its Sweeny, Texas refinery on Tuesday, and expects the plant to be at full production by mid-September. Gulf Coast and Caribbean energy infrastructure began to brace for Irma. BP Plc said it would evacuate non-essential personnel from its Thunder Horse platform in the Gulf of Mexico, while Buckeye Partners has shut its Yabucoa oil terminal in Puerto Rico and was preparing for the storm at two other marine terminals in Florida and the Bahamas.
Oil terminals and distributors in Florida are tracking the storm, which could curtail fuel shipments to the state, which is largely dependent upon waterborne deliveries of gasoline and diesel. Around 250,000 bpd of refining capacity in the Dominican Republic and Cuba lies in the immediate path of Irma, Thomson Reuters Eikon data showed.
Weekly fuel storage data on Wednesday from the American Petroleum Institute and on Thursday from the Energy Information Administration was expected to give a better view of the extent of Harvey's impact on US fuel inventories. But analysts say it will take a few weeks more to get a complete picture. Analysts polled ahead of inventory report forecast that crude stocks last week likely rose 4.0 million barrels after nine straight weeks of drawdowns, while refined product inventories were seen lower as refining rates plunged amid Harvey.
There is also another tropical storm on Irma's heels in the Atlantic, and additional one active in the Gulf of Mexico. Longer-term, the oil industry outlook is for ample supplies and low prices as crude output remains high in the three biggest producing regions: Russia, the Middle East and North America.
Adding to the longer term bearishness, some Libyan production returned. The 280,000 bpd Sharara oilfield, the country's largest, was gradually restarting on Wednesday after the lifting of a pipeline blockade, Libyan oil sources said.
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