• Gasoline prices jump as refining centers along the Texas coast wind down their activity
  • WTI’s discount to Brent oil widens the most since August 2015
  • Oil prices fail to maintain above an important technical support

The hurricane Harvey has already brought some havoc along the Texas coast compelling many refining centers to halt their activity. As it has sparked flooding, wind-blasts and abundant rainfall, it has also brought on outages in petroleum refining, for that reason gasoline prices have jumped while WTI oil prices have been sold-off since the beginning of the week.

link do file download linkGasoline prices (the September’s contract) has risen substantially whereas WTI oil prices have moved down which has brought about a massive increase of the spread. Source: Bloomberg

Let’s explain why gasoline and WTI prices have decoupled so heavily of late. Namely, adverse weather conditions have forced many refineries to stop their activities which could lead to a decline in usage of oil thereby oil prices have been depressed so far. On the other hand, a lower degree of refining means that less gasoline will be directed to the market which has pushed gasoline prices up over the course of recent days.

However, even as we have a divergence between WTI and gasoline prices, it’s unlikely that the gap will be closed in the near term due to a less demand for oil as we’ve pointed out earlier. Besides, it’s worth highlighting that bad weather conditions hamper import of oil towards maritime refineries. It increases odds to get a bump in oil inventories in the upcoming week or two. That said, it could mute oil bulls at least for the time being. Nonetheless, those refineries which are not endangered might lift their petroleum refining on the back of a noticeable rise in operational margins. If so, it could soothe a net effect on oil prices coming from a potential pick-up of stocks.

link do file download linkWTI’s discount to Brent oil has increased to the highest level since August 2015 on expectations of a lower demand for oil from the Texas Gulf coast refineries. Source: Bloomberg

The chart above depicts how much oil traders are concerned about a decline in oil demand. Even though the hurricane has already caused some damages in Texas, it’s hard to predict the overall economic impact. Thus, there is a possibility that the WTI-Brent spread will widen yet more. At the end of the day, let us remind that a positive impact stemming from a seasonal increase of demand for oil is going to fade away in the last quarter, hence even as oil prices could rebound when the hurricane Harvey moves off the US durably, it could struggle to hold above $50 for longer.

link do file download linkWTI prices have already broken through $47 and could go lower as low as $45.3 where we’ve got a notable support zone. Source: xStation5

Technically, WTI oil prices have crashed $47 and could manage to reach the nearest support area in the vicinity of $45.3. Keep in mind that the price could rebound quite considerably when weather conditions stabilize and refineries get back to normal work.