Oil falls on U.S. refinery outage, persistent inflation

FILE PHOTO: Oil tankers sail along Nakhodka Bay near the port city of Nakhodka, Russia August 12, 2022. REUTERS/Tatiana Meel/File Photo

By Laura Sanicola

(Reuters) -Oil prices fell by $1 on Thursday following a major U.S. refinery outage and as sticky inflation dampened hopes for near-term U.S. interest rate cuts, but worries that Iran might attack Israeli interests kept crude near six-month highs.

Brent crude futures were down 68 cents, or 0.8%, to $89.80 a barrel at 11:07 a.m. EST (1607 GMT). U.S. West Texas Intermediate crude futures lost 91 cents or 1.1%, to $85.30 a barrel. Both benchmarks were down more than $1 before bouncing off session lows.

A power outage shut multiple fuel-producing units at Motiva Enterprise’s massive 626,600 barrel per day Port Arthur, Texas facility on Wednesday.

Idling and stabilizing the multiple units shut by the power outage will take up to 35 hours, Motiva said in a regulatory filing, without specifying a timeline for restarting the units.

Prolonged refinery outages typically dampen crude oil demand and drive more crude oil into inventories.

“This is a mammoth refinery and a long downturn could be negative for crude,” said Bob Yawger, director of energy futures at Mizuho.

It will be difficult to maintain Brent above $90 a barrel in the second half of the year without actual supply disruption associated with geopolitical events, said global energy strategist Vikas Dwivedi of Macquarie.

“As a result, we expect oil to turn bearish as the year progresses due to non-OPEC supply growth, a material amount of OPEC+ spare capacity re-entering the market, and the potential that continuing inflation softens demand.”

Minutes from the U.S. Federal Reserve showed officials worried that progress on inflation might have stalled and a longer period of tight monetary policy would be needed.

Investors who had expected a rate cut in June now see September as a likelier timing, following a third straight consumer inflation reading that exceeded forecasts.

In Europe, central bank officials kept borrowing costs at a record high as expected, but signalled the ECB may soon cut rates.

Slower rate cuts could crimp oil demand, yet OPEC stuck to its forecast for relatively strong global demand growth in 2024.

The International Energy Agency will announce its expectations in its monthly report on Friday.

Meanwhile, traders worried that Iran might retaliate for a suspected Israeli air strike on its embassy in Syria on April 1. U.S. Secretary of State Antony Blinken has vowed that the U.S. will stand with Israel against any threats by Iran.

This week, Israel and Hamas began a fresh round of negotiations in their more than six-month-old Gaza war but those talks have yielded no agreement.

(Additional reporting by Noah Browning and Natalie Grover in London, Shariq Khan in New York and Emily Chow in Singapore; editing by Christopher Cushing, Jason Neely, David Evans and David Gregorio)