Harvey, downgraded to a tropical storm and losing steam as it moved inland, shut at least 4.4 million barrels per day (bpd) of refining capacity.
That sparked fears of a fuel shortage before the Labor Day weekend and cut refinery demand for crude, widening the spread between U.S. gasoline RBc1 and crude CLc1.
This gasoline “crack spread” hit a high of $27.79 a barrel on Friday, up $10 in a week.
Brent crude for November was down 40 cents at $52.46 a barrel by 1350 GMT. The Brent contract for October, which expired on Thursday, closed up $1.52 at $52.38.
U.S. crude was last down 40 cents at $46.83 a barrel. The contract rebounded 2.8 percent on Thursday but is heading for a weekly decline of around 2 percent.
U.S. gasoline hit a two-year high above $2 a gallon on Thursday, but eased back on Friday. The gasoline September futures contract settled up 25.52 cents, or 13.5 percent, at $2.1399 on the last day of trading in the contract. Gasoline for October RBc1 opened much lower on Friday, at $1.7744 a gallon.
“Natural disasters generally are negative over the medium term due to demand destruction, but in the short term the market reacts to the shortage of supply,” said Jason Gammel, oil and gas analyst at U.S. investment bank Jefferies.
The U.S. government tapped its strategic oil reserves for the first time in five years on Thursday, releasing 1 million barrels of crude to a working refinery in Louisiana.
An adviser to President Donald Trump told a White House briefing more oil could be released from reserves.
“We would be very comfortable tapping into that,” homeland security adviser Tom Bossert told reporters.
U.S. crude oil stocks fell sharply last week as refineries raised output with the approach of Harvey, the Energy Information Administration said. [EIA/S]
The oil market outside the United States remains well supplied with ample production by the Organization of the Petroleum Exporting Countries.
Tony Nunan, oil risk manager at Mitsubishi Corp, said Harvey was likely to increase global oversupply in the long run:
“Production will come back faster than refining so it is just going to exacerbate the situation where there’s too much oil,” he said.