Further Hurricane Related Shut-Ins

Energy

Oil markets edged higher yesterday with concerns over the impact from Hurricane Marco and Tropical Storm Laura in the US Gulf of Mexico (GOM). According to the latest data from the Bureau of Safety and Environmental Enforcement (BSEE), a little over 82% of offshore oil production in GOM has been shut in, which is equivalent to around 1.52MMbbls/d. Almost 57% of natural gas production in the GOM has also been shut in.

As we mentioned yesterday, these storms also put a large share of US refining capacity at risk, with 54% of US capacity sitting in PADD3. There are media reports of a number of refineries shutting or reducing operations along the Texas coastline. As of now, a little over 1MMbbls/d of refining capacity will reportedly be taken offline as a result of the storm, including Motiva’s 630Mbbls/d Port Arthur refinery, the largest in the US. While refinery disruptions may provide some support to product markets (like we already started seeing yesterday), there is plenty of product inventory out there for the market to draw down.

Finally, the API will release its weekly inventory numbers later today, and expectations are that US crude oil inventories declined by around 3MMbbls over the last week. While on the product side, draws of around 2MMbbls and 600Mbbls are expected for gasoline and distillate fuel oil respectively.

Metals

Metals started the week on a positive note, with dollar weakness providing some support, while markets were given a further boost by hefty outflows in LME inventories yesterday, with copper, aluminium and zinc inventories declining by 5,575t, 1,150t and 1,225t respectively. With copper inventories sitting at just 97.9kt, nearby spreads are vulnerable to volatility. From a fundamental perspective, current optimism is also partly underpinned by expectations that we will see a seasonal pickup in physical demand as we gradually come out of the summer lull. Meanwhile on the supply side,  in the US, Nevada Copper has restarted its milling operations at its underground project at Pumpkin Hollow, while in Indonesia, Reuters reports that more than a thousand workers blocked access to the Grasberg mine on Monday.

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