Oil rises amid new doubts about Saudi capacity to bounce back from attacks

Gasoline took the spotlight away from oil on Thursday as reports of massive flooding in Texas led to concerns of a slowdown in refining activity and lower demand for crude.

That prompted a rally in futures prices for the motor fuel, but also a pullback in U.S. oil prices from their highs of the session.

The Sabine Ship Channel, a major Southeast Texas waterway for transporting cargo, including crude oil and natural gas, was also closed early Thursday because of flooding from Tropical Storm Imelda, .

Exxon Mobil Corp.  shut down units at its Beaumont, Texas petrochemical plant due to flooding, and its 369,024 barrel-per-day crude-oil refinery, also in Beaumont, was said to be preparing to shut Thursday, , citing sources familiar with refinery operations.

Shutdowns would lead to lost power demand and lower crude runs, Phil Flynn, senior market analyst at Price Futures Group, told MarketWatch.

West Texas Intermediate crude for October delivery  on the New York Mercantile Exchange rose 2 cents to settle at $58.13 a barrel after tapping a high of $59.54. The October contract expires at the end of Friday’s trading session. November Brent crude , the global benchmark, added 80 cents, or 1.3%, to end at $64.40 a barrel on ICE Futures Europe.

The refinery issues fed a rally in gasoline futures, lifting the October contract  up by 4.3 cents, or 2.6%, to settle at $1.7007 a gallon. October heating oil  also added 3.2 cents, or 1.6%, to $2.0049 a gallon.

Oil futures got an early boost after that Saudi Arabia was looking to buy oil and additional oil products from Iraq and possibly other neighbors, including a request for as much as 20 million barrels of oil from Iraq, as it scrambles to maintain its reputation as a reliable supplier after missiles knocked out around half of the country’s crude production over the weekend.

Saudi Arabia approached Baghdad with a request to buy crude oil from OPEC’s number-two to compensate for its production outage caused by the Saturday attacks, sources who declined to be named .

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Crude rallied on Monday in the wake of the attacks, but lost ground the next two sessions. On Tuesday, Saudi Arabia’s energy minister, Prince Abdulaziz bin Salman, said the country had already restored around half of its lost production. Saudi Arabia said it would restore lost production by the end of the month.

Traders, however, are skeptical of the rosy outlook offered by Saudi officials, said Flynn.

“The Saudis are telling us one thing but industry experts are telling us another on this. It’s not like you can just replace refinery parts overnight,” he said in a note.

On the other hand, “talk that the U.S. is looking for a diplomatic response to the Saudi attack is “reducing the chances of a full blown military strike at this time,” said Flynn, adding that “Brent is holding up better [than WTI] as the risk is still high.”

Data on Wednesday from the Energy Information Administration revealed a weekly increase of 1.1 million barrels in U.S. crude stockpiles, following four consecutive weeks of declines.

The report also showed that U.S. oil output held steady last week at 12.4 million barrels a day, just 100,000 barrels a day less than the all-time high reached last month, said Tyler Richey, co-editor of Sevens Report Research.

“So while domestic production growth appears to have slowed, the total production level remains elevated and a moderate headwind on oil prices, but not enough to materially offset the geopolitical concerns linked to the attacks on Saudi Arabia,” he wrote in a newsletter.

WTI and Brent oil futures trade more 6% higher week to date.

In other energy trade, October natural gas  fell by 9.9 cents, or 3.8%, to $2.538 per million British thermal units.

The U.S. Energy Information Administration reported Thursday that rose by 84 billion cubic feet for the week ended Sept. 13—larger than the average build of 76 billion cubic feet expected by analysts polled by S&P Global Platts.

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