Crude oil futures opened higher early Monday and then turned lower. The price action is mixed at this time because the oil industry is not sure how much oil output has been affected by Hurricane Harvey which struck the Gulf Coast of Texas over the week-end.

At 0246 GMT, October West Texas Intermediate crude oil futures are trading $47.71, down $0.16 or -0.31%. Earlier in the session, the futures contract traded as high at $48.20.

We may not know until daylight in the U.S. the full extent of the storm’s damage so the market is likely to play the waiting game until then with mostly sideways action. However, the impact would be felt globally if refineries in the region were forced to shut down for weeks due to floods.

According to Reuters, the U.S. National Hurricane Center (NHC) said late Sunday that Harvey was moving away from the Texas coast but was expected to linger close to the shore through Monday, resulting in strong rainfall and flooding.

The Bureau of Safety and Environmental Enforcement also said that as of Sunday afternoon, about 22 percent, or 379,000 barrels, of Gulf production was idled due to the storm.

Forecast

To repeat, the rain and flooding in the key oil production areas around Houston, Texas and the surrounding region is expected to continue through the week. Therefore, it may actually be days before traders learn the storm’s full impact on oil and gas infrastructure.

In the meantime, we do know that ten oil refinery plants in the Houston area and Corpus Christi are shutting down because of the storm, according to a report released Sunday by S&P Global Platts. They normally have the capacity to refine about 2 million barrels of oil a day.

The area currently affected accounts for nearly one-third of the nation’s capacity to turn oil into gas, diesel and other products.

The markets have reacted to the disaster by driving up gasoline prices and selling crude oil. This is a normal first reaction. With the refineries shutdown, gasoline cannot be produced so there will be a shortage. At the same time, however, with refinery operations at a standstill, there is lower demand for crude oil.

The impact of the hurricane on crude oil prices is also being diminished because the world has a glut of oil. As more refineries go offline, there’s less stress to the system because it’s well supplied. This suggests we may not see a bullish impact on crude oil unless nearby oil fields are shut down for weeks or months.

This article was originally posted on FX Empire

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