(Bloomberg) -- After being roiled earlier in the week by an attack on a key Saudi Arabian facility, oil traders turned their focus to a storm flooding the U.S. Gulf Coast.
Futures gave up early gains Thursday to settle little changed in New York. The remnants of Tropical Storm Imelda dumped more than three feet of rain on parts of the Texas coast, curbing refinery operations and shutting a key pipeline. The International Energy Agency's Executive Director Fatih Birol said the global oil market remains well supplied and ruled out any release of strategic reserves in the wake of the Saudi attack.
“There are fears that the floods in Texas would temporarily reduce demand for domestic crude,” said Andy Lipow, president of Lipow Oil Associates LLC in Houston. “This weather could also delay” crude exports, he said.
Concerns that tensions in the Persian Gulf would boil over were somewhat calmed when U.S. Secretary of State Mike Pompeo said President Donald Trump wants a peaceful resolution to the aerial attacks on Saudi facilities. Days after more than 5 million barrels a day of the kingdom's output were knocked offline, the Saudis were scouring global markets for fuels and picking up one-time supplies, people familiar with the matter said.
The Marketlink pipeline carrying oil from Cushing, Oklahoma, the delivery point for New York-traded futures, to refineries in Texas was idled, people familiar with the situation said. That helped push October futures to a discount to November. The flooding and power outages also forced refineries around Port Arthur and Beaumont to reduce operating rates, and shut two huge terminals used to export crude and fuel.
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West Texas Intermediate crude for October delivery settled 2 cents higher at $58.13 a barrel on the New York Mercantile Exchange. The October-November spread sank to minus 6 cents, the first time it settled in contango, where near-term prices are lower than those further out, since Aug. 14.
Brent for November settlement rose 80 cents to $64.40 on the ICE Futures Europe Exchange. The global benchmark crude traded at a $6.21 premium to WTI for the same month.
Crude soared by a record amount in London earlier this week after the attacks hobbled output by the world's biggest oil exporter. Traders remain on edge amid concern that hostilities may flare again. The U.S. and Saudi Arabia have pointed the finger of blame at Iran and Trump has pledged to add “some very significant sanctions” on the Islamic Republic.
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With WTI about 6% above levels seen before the attacks, investors will be looking at the number of drilling rigs in operation to track a revival in investments after six months of slowing down, said Rob Haworth, who helps oversee $151 billion at U.S. Bank Wealth Management in Seattle.
“U.S. hasn't stopped growth in oil production but growth has slowed,” he said. “We may start seen slight increase in rig count because of the recent price gains.”
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--With assistance from Alexander Kwiatkowski, Saket Sundria, James Thornhill and Grant Smith.
To contact the reporter on this story: Sheela Tobben in New York at vtobben@bloomberg.net
To contact the editors responsible for this story: David Marino at dmarino4@bloomberg.net, Mike Jeffers
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