As oil prices weather storm, OPEC looks for long-term boost from Harvey

LONDON - For veteran OPEC officials, Hurricane Harvey’s impact on global oil markets is one of the strangest things they have seen.

The storm has led to some of the biggest disruptions to U.S. energy infrastructure; yet it has failed to boost crude prices.

In contrast with previous major hurricanes such as Katrina in 2005, Harvey has actually seen oil prices edge down as traders have focused more on the hit to demand from damaged U.S. refineries than the blow to supply from knocked-out production.

That is deeply frustrating for OPEC countries currently restricting oil supplies in an attempt to push prices higher.

“It seems no event will move the oil price up much,” said one OPEC delegate, surprised by the lack of impact from Harvey.

Another was also bemused after oil prices fell this week, defying too a steep drop in Libyan production due to unrest.

“It is all really strange. The sentiment of the market has changed a lot in the last 10 years,” he said.

Whether the market continues to frustrate its would-be masters remains to be seen, however, with analysts divided whether demand from U.S. refineries will recover more quickly than U.S. production.

‘OPEC MUST BE RAGING’

OPEC long ignored the U.S. shale revolution that helped the world’s largest oil consumer sharply raise output and become a major exporter of both crude and products in recent years.

When it finally recognized the threat, OPEC led by Saudi Arabia embarked on a pump war with the United States aimed at hitting the high-cost U.S. industry with lower oil prices.

In the past two years, however, OPEC has restrained production to prop up prices, because the pain of cheaper barrels was putting too much stress on most members’ finances.

The move has revived growth in the U.S. oil industry, with production and exports hitting new highs - until Harvey.

Unlike hurricanes Katrina or Gustav, when strong winds mainly caused damage to oil production, Harvey has also severely disrupted the U.S. refining industry and products pipelines, causing a spike in products prices.

Olivier Jacob from consultancy Petromatrix said U.S. gasoline prices were trading at levels normally equivalent to oil prices of around $84 per barrel, whereas Brent and WTI crude futures are actually at $51 and $46 per barrel respectively.

“OPEC must be raging, they’re not getting any of this (gain),” Jakob said.