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Hurricane Harvey was undoubtedly one of the worst and most expensive natural disasters to have hit America. Having hit a number of counties in Texas, the bill for repairs is estimated to be at $180bn.
The UAE is currently suffering from lower oil prices and restrictions on output put in place by OPEC, which is having lasting effects on its economy. The OPEC, or the Organisation of Petroleum Exporting Countries, is the intergovernmental body in charge of coordinating and unifying petrol prices among member countries in order keep prices fair and stable for all involved. Could the recent disaster in Texas, a significant oil producer, have an effect on oil prices in the UAE and worldwide? Here are some considerations.
Increased Demand
Hurricane Harvey's impact was such that an oil refinery between Texas and Louisiana had to be shut down, as well as various other refineries across the country. Due to this shutting down of major production units, supply will have slightly decreased, at least for a short period, meaning that price of crude oil will have risen slightly to meet demand.
This means the UAE oil producers may have made slightly greater profits on their oil compared to before the storm, and there may well be greater demand for their supplies now that America's capabilities have been significantly hit.
Oil as a Commodity
Those trading on commodities like oil through a broker will no doubt be aware of the impacts such a major event can have on the market. It is events like these which can open up opportunities to exploit volatile oil prices and those following the market should plan their investment strategies around these fluctuations.
The share prices of oil companies in UAE are also something which is bound to interest investors, as they could well be about to enjoy a short-term rise in value as a result of Hurricane Harvey.
The Oil Glut
As OPEC's recent measures show, there is a global oil glut which has been significantly hampering prices, and the UAE has been particularly affected since it produces vast quantities of the commodity (and is also a member of OPEC).
It is well documented that America, as a major producer of oil, has massively contributed to this oversupply, so it is entirely likely that the glut may be reduced as the country's refineries were shut for the last few weeks (they are just starting to reopen).
Long Term
Although the extent of the damage remains to be seen, it is unlikely that Texas oil refineries will be out of action for any extended period of time. Whilst prices may be affected in the short term, longer term effects are unlikely to materialise, as the recovery process will most likely be swift.
That being said, the UAE will still have the opportunity to capitalise on the higher oil prices now, and it may still be some time before the US refineries reach their full capacity once again.
Although it may not have any lasting effects this time, Hurricane Harvey is a significant example of how natural disasters can have a major impact on the price of commodities like oil, and how the reach of these effects is global.
The UAE is bound to benefit in the short term from the effect of the storm on oil prices, through gaining extra profit from price rises and being able to reinvest this back into the economy/oil companies. As for the more major problem of oil oversupply, however, there is no end in sight.
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