Goldman sees active hurricane season posing upside risk to refining margins (NYSEARCA:USO)

Crude oil futures fell for a third straight session Tuesday, after Hurricane Beryl appeared to cause little lasting damage to energy facilities on the Texas coast, and operations are expected to be fully restored quickly.

Multiple refineries that were shut as a precaution ahead of the storm already are back online or in the process of coming online, while the Houston Ship Channel is expected to reopen fully on Wednesday, Sevens Report Research co-editor Tyler Richey told MarketWatch.

“As we get more reports out of Texas and Houston that things are somewhat flooded but OK, angst leaves the market,” Again Capital’s John Kilduff said, according to Reuters.

But expectations for a more severe Atlantic hurricane season than usual this year will pose an upside risk to refining margins rather than to crude prices, Goldman Sachs analysts said.

“The recent refining response to low margins, and low positioning in refined products (especially for gasoline) are key reasons why we see more upside to refined product margins than to crude prices,” Goldman wrote.

The bank also maintained its outlook for Brent prices to average $86/bbl this quarter, noting OECD commercial stocks continue to be drawn down and spreading wildfires in Alberta already are disrupting Canadian oil production.

Front-month Nymex crude (CL1:COM) for August delivery settled -1.1% to $81.41/bbl, and front-month September Brent crude (CO1:COM) closed -1.2% to $84.66/bbl.

ETFs: (NYSEARCA:USO), (BNO), (UCO), (SCO), (USL), (DBO), (DRIP), (GUSH), (NRGU), (USOI)

In its Short-Term Energy Outlook, the U.S. Energy Information Administration raised its 2024 and 2025 price estimates for Brent and WTI, citing expectations of “persistent withdrawals from global oil inventories.”

The EIA said it forecasts the Brent spot price will average $86.37/bbl this year, up from $84.15 in its prior forecast, while the agency sees WTI crude averaging $82.03/bbl, up from $79.70 previously.

Global oil demand will average 104.7M bbl/day next year, while supply will total 104.6M bbl/day, the EIA said, reversing a previous outlook for a surplus.

“We expect that OPEC+ will produce less crude oil than the group’s announced targets through the rest of the forecast period, which will reduce global oil inventories through mid-2025 and keep OECD inventories near the bottom of the range,” the EIA said.