Global oil prices extended gains for a third consecutive session Friday, lifting U.S. crude prices past $60 a barrel to a fresh six-week high, as Tropical Storm Barry barrels towards the Louisiana coast, shutting down nearly half of the daily production from Gulf of Mexico drillers.
Miami's National Hurricane Center said the storm could gather speed and strengthen into a hurricane over the coming days, bringing storm surges, heavy rainfall and wind hazards to the central Gulf coast. Hurricane conditions are expected for portions of the Louisiana coast, the NHC said, where Governor John Bel Edwards has declared a state of emergency.
With U.S. oil majors such as Exxon Mobil Corp. (XOM) - Get Report and Chevron Corp. (CVX) - Get Report , as well as European rivals BP plc (BP) - Get Report and Royal Dutch Shell (RDS.A) evacuating staff from rigs and platforms in the Gulf, which is home to nearly a fifth of U.S. crude output, the U.S. Bureau of Safety and Environmental Enforcement has estimated that more than 1 million barrels in daily production have been taken offline.
"Looking ahead concerns will grow around the significant amount of refining capacity at risk," said ING's head of commodity strategy Warren Patterson. "Louisiana has a refining capacity of 3.7 million barrels per day, which is 20% of total US refining capacity."
"Disruption to refining operations as a result of the storm would likely prove supportive for product cracks, and given the growing importance of the US as a refined product exporter, this strength would likely be felt in other regional markets as well," he added.
Brent crude contracts for September delivery, the global benchmark, were seen 27 cents higher from their Thursday close and changing hands at $66.79 per barrel in early Friday trading Friday, while West Texas Intermediate crude contracts for August, which are more tightly linked to U.S. gas prices, were marked 10 cents higher at a six-week high of $60.30 per barrel.
The recent gains, however, may not hold once the storm passes through Louisiana over the weekend and drillers return to full capacity over the coming days.
Earlier Friday, the International Energy Agency predicted that record-high U.S production rates, which are set to top 13 million barrels a day next year, will offset both weakening global demand and OPEC output cuts, pushing global oil stocks 136 million barrels higher by the first quarter of 2020.
"The picture will evolve as 2019 progresses, but in the near term the main area of focus remains demand growth," the IEA said in its July Oil Report. "While the GDP estimates behind our forecast are unchanged from last month's Report, there are indications of deteriorating trade and manufacturing activity."
"Recent data show that global manufacturing output in 2Q19 fell for the first time since late 2012 and new orders have declined at a fast pace," the IEA said. "On the positive side, the mood surrounding the US/China trade dispute appears to have improved and the resolution of outstanding issues would be a massive boost to economic confidence."