US refineries are just returning to their feet after last week's Hurricane Harvey, with about 3.8 million barrels per day (bpd) of refining capacity, or 20 percent of the USA total, remaining shut as of Wednesday.
Crude production dropped by 822,000 barrels per day to 8.781 million barrels per day. The price for West Texas Intermediate, the USA benchmark for the price of oil, was up 0.55 percent at 9:10 a.m. EDT to $47.74 per barrel.
Irma, however, was not expected to affect supply as it was headed away from US oil production in the Gulf. Despite the recent week's rise in price, the oil (WTI) is down more than 7 percent since the agreement.
Weekly December Brent Crude Oil
USA oil output fell by nearly 8 per cent, from 9.5 million barrels per day (bpd) to 8.8 million bpd, according to the Energy Information Administration.
USA crude oil prices rose and gasoline prices fell at the start of the holiday-shortened week as the gradual restart of refineries in the Gulf of Mexico that were shut by Hurricane Harvey raised demand for crude and eased fears of a serious supply crunch. This should also lead to an increase of the amount of crude oil in storage, market analysts said.
Brent crude, the global benchmark, was down 0.3%, at $53.61 a barrel in London midmorning trading. Brent's front, second and third month contracts were in backwardation, trading at a premium versus farther-out contracts - a sign of near-term strength. The year high is $54.45, and the low is $42.53. The difference between the two crude benchmarks is a key trade for many speculators.
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Late in the week, oil futures traded mixed, with Brent rising to a 5-1/2 month high while USA crude slipped on a bigger-than-expected crude stock build as the restart of US refiners after Hurricane Harvey was countered by the threat of Hurricane Irma.
Oil prices settled higher on Monday, as refineries planned restarts and Saudi Arabia debated the possibility of extending a deal to curb output among major producers.
Investors and analysts were also looking ahead to monthly reports from OPEC and the International Energy Agency due on Tuesday and Wednesday, respectively, for the latest OPEC production data and global demand forecasts.
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Hedge funds still have significant short positions in WTI amounting to around 180 million barrels, after raising them from a recent low of 104 million barrels on August 15. Russian Federation is a party to the effort and is cutting the most among non-OPEC members.
The Strategic Petroleum Reserve was tapped for 300,000 barrels, reducing stocks to 678.6 million barrels.
But while hedge funds see the impact on fuel supplies lingering for some time, they are more confident that crude producers will find a way around the refinery bottleneck.
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Even so, some cautioned against betting too hard on a continued Brent rally versus WTI.