Don’t expect crude to make a comeback thanks to Hurricane Harvey, says RBC global head of commodity strategy Helima Croft.
In a note released on August 28, Croft explained that while hurricanes have, in the past, disrupted the supply of oil, the current infrastructure of U.S. crude production has actually made weather events like Harvey less bullish for oil than in the past.
According to Croft, the Gulf of Mexico had previously made up about 30 percent of total U.S. crude production, while nowadays it only makes up 15 percent of the total.
In other words, Harvey isn’t actually disrupting the oversupply of oil as much as some more have initially thought. U.S. crude production still remains near record highs, leading Croft to believe that the oversupply issue for crude, which has dragged down the commodity’s price, will keep weighing down the commodity.
In fact, Harvey might actually be bearish for oil, given that it has taken refining capacity offline, cutting down on demand.
“We think the developments for crude, despite [Thursday’s] rally, still look pretty bearish because of how many barrels are simply backing up with these refineries being offline,” she said last week on CNBC’s “Futures Now.” “That’s probably going to sort of cap whether or not WTI can break through $ 50 for a while, barring any sort of major outside catalysts.”
If there is a bright spot for crude this year, it is actually be the situation in Libya, said the strategist. According to Croft, political unrest in Libya, which has cut down the country’s crude oil production, doesn’t look to be fading, and could be a “significant source of support” for the commodity going into November’s OPEC meeting.
Crude did fall on Friday, but still remains near a one-week high. The commodity, however, has still tanked more than 4 percent in the past month.