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Oil Holds at Five-Month High as Hurricane Nears U.S. Gulf Coast

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(Bloomberg) — Oil held at a five-month high as Hurricane Laura bore down on key refining facilities on the U.S. Gulf Coast and an industry report added to optimism that American energy demand is recovering.

Futures in New York were steady after jumping 1.7% on Tuesday. The storm is expected to make landfall late Wednesday or early Thursday along the Texas-Louisiana coast as a Category 3 hurricane, according to the National Hurricane Center. More than 84% of oil output in the Gulf of Mexico has now shut, while almost 3 million barrels a day of refining capacity has been closed.

See also: Hurricane Laura Threatens the U.S. With an $18 Billion Disaster

The American Petroleum Institute reported U.S. oil inventories fell by 4.52 million barrels last week and gasoline stockpiles shrunk by 6.39 million barrels, according to people familiar with the data. That would be the fifth straight weekly decline in crude supplies if the industry estimates are confirmed by official data due Wednesday.

Laura has the potential to take some big refineries offline and disrupt global energy flows. On its current track, the storm could lead to around 10% to 12% of U.S. refining capacity being shut for more than six months, according to disaster modeler with Enki Research. Tanker rates to ship gasoline from Europe to the U.S. are already surging even before Laura makes landfall.

The hurricane will likely only have a short-term impact on global prices, however, with this year’s lackluster summer driving season nearing an end and a pickup in consumption remaining uncertain due to the pandemic. Gasoline demand in key consuming nations appears stuck at about 10% to 15% below year-earlier levels, while jet fuel usage is much further behind.

“The impact of the hurricane will be short-lived,” said Jun Inoue, an economist at Mizuho Research Institute. Oil prices will probably continue to rise as excess inventories are used up, but West Texas Intermediate is unlikely to climb above $50 a barrel this year, he said.

Brent’s three-month timespread was $1 a barrel in contango — where prompt contracts are cheaper than later-dated ones — compared with $1.41 at the end of last week. The change in the market structure of the global crude benchmark suggests that concern over a potential supply glut has eased in recent days.

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