Crude plunges U.S. crude oil plunged 3% today to settle at $49.29/bbl, capping a 4.6% weekly drop for the U.S. benchmark, as traders focused on the implications of Tropical Storm Nate and potential disruptions to crude production and refining capacity in the U.S. Gulf of Mexico.
The BSEE estimates 1.2M bbl/day of crude oil production has been shut-in by operators ahead of the storm; that’s 71% of U.S. Gulf oil output taken offline vs. just 25% at the peak during Hurricane Harvey.
An estimated 53% of U.S. Gulf natural gas production, or 1.7B cf/day, also has been shut.
The U.S. Gulf is home to ~17% of the country’s crude oil production and 5% of dry natural gas output, and more than 45% of U.S. oil refining capacity is along the Gulf Coast.
The storm, which is expected to make landfall near Louisiana late Saturday as a hurricane, likely will lead to reduced U.S. exports of crude oil and higher refining margins given low stockpiles of gasoline and other refined products, Goldman Sachs says.
The sale and purchase of commodities is usually executed through futures contracts on exchanges that standardize the quantity and minimal satisfactory of the commodity being traded. As an example, the Chicago board of trade stipulates that one wheat agreement is for five,000 bushels and also states what grades of wheat can be used to meet the settlement.
There are sorts of traders that change commodity futures. The first is customers and producers of commodities that use commodity futures contracts for the hedging functions for which they were first meant. Theses buyers truly make or take delivery of the actual commodity while the futures agreement expires. As an example, the wheat farmer that vegetation a crop can hedge towards the hazard of dropping money if the charge of wheat falls before the crop is harvested. The farmer can promote wheat futures contracts while the crop is planted and guarantee a predetermined price for the wheat at the time it’s far harvested.
Theses traders in no way have the desire to make or take transport of the real commodity while the futures agreement expires. Among the futures markets are very liquid and have an excessive degree of each day variety and volatility, making them very tempting markets for intraday buyers. A number of the index futures are utilized by brokerages and portfolio managers to offset threat. Additionally, since commodities do now not generally exchange in tandem with equity and bond markets, some commodities can also be used correctly to diversify a funding portfolio.
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