Crude oil futures rose by approximately 1% to reach a one-week peak on Friday due to a surge in U.S. diesel prices, a decrease in the number of active oil rigs, and a fire outbreak at a refinery in Louisiana.
Brent futures climbed by $1.12, equivalent to 1.3%, closing at $84.48 per barrel. Similarly, U.S. West Texas Intermediate (WTI) crude futures increased by 78 cents, or 1.0%, settling at $79.83. Diesel futures experienced a notable rise of around 5%, reaching a nearly seven-month high. This surge in diesel prices also led to an increase in the diesel crack spread, a gauge of refining profit margins, which reached its highest level since January 2023.
Concerns regarding the escalating diesel prices, the diesel crack spread, and potential diesel shortages during refinery maintenance were the primary drivers behind the price uptick. Additionally, the situation was influenced by a fire incident at a Louisiana refinery and a decrease in the number of active oil rigs in the United States.
However, the gains in crude prices were tempered by less favorable economic data and a stronger U.S. dollar. Despite these factors, Brent’s weekly decline was less than 1%, and WTI experienced a decrease of about 2%. The previous week had seen both benchmarks fall around 2%.
A fire that occurred in a large naphtha storage tank at Marathon Petroleum’s refinery in Garyville, Louisiana was successfully contained on Friday afternoon. This refinery has a daily capacity of 596,000 barrels per day.
Throughout August, U.S. energy companies reduced the number of operational oil rigs for the ninth consecutive month, as reported by energy services company Baker Hughes. The negative economic news from Germany, the largest economy in Europe, coupled with a stronger U.S. dollar, which reached an 11-week high against other currencies, exerted limiting pressure on crude prices. The increase in the dollar was driven by remarks from U.S. Federal Reserve Chair Jerome Powell, who suggested the potential need for further interest rate hikes to combat inflation. Such rate hikes could impede economic growth and reduce oil demand. Additionally, a stronger dollar can make oil more expensive for holders of other currencies.
In terms of consumer sentiment, a survey conducted in August revealed a modest decline, with both short- and long-term inflation expectations worsening.
Morgan Stanley analysts predicted solid support for Brent prices around $80 per barrel. They anticipated that crude would likely remain in a deficit for the remainder of the year before transitioning to a slight surplus in early 2024. However, some experts, like John Evans from oil brokerage firm PVM, cautioned against assuming definite crude deficits.
Equinor, a Norwegian energy company, defied expectations by commencing production at its extended Statfjord Ost field six months ahead of schedule.
