Crude oil futures were higher in mid-morning trade in Asia Aug. 30 after Hurricane Ida forced the shutdown of more than 95% of the Gulf of Mexico’s oil production and the US dollar softened on latest indications from the US Federal Reserve.
At 10:25 am Singapore time (0225 GMT), the ICE October Brent futures contract was up 35 cents/b (0.48%) from the previous close at $73.05/b, while the NYMEX October light sweet crude contract was 3 cents/b (0.06%) higher at $68.77/b.
“Oil prices were trading higher with Hurricane Ida driving evacuation from offshore rigs and putting a cap on oil supplies in the near term,” IG market strategist Yeap Jun Rong said Aug. 30.
Ida was upgraded to a Category 4 hurricane by the US National Hurricane Center on Aug. 29 with maximum sustained winds of 150 mph before making landfall south of New Orleans just before noon CT as one of the most powerful storms to ever hit the US Gulf Coast. By 4 pm CT, Ida remained at Category 4 strength, with sustained winds at 130 mph.
The US Bureau of Safety and Environmental Enforcement Aug. 29 reported that 95.65% or 1.741 million b/d of the US Gulf’s crude oil was shut in, as well as 93.75% or 2.091 Bcf/d of the region’s 2.2 Bcf/d of natural gas production. An estimated 288 offshore platforms were evacuated — 51.4% of the US Gulf’s total.
The US dollar has also weakened since Federal Reserve Chairman Jerome Powell at the recent Jackson Hole Symposium said the central bank may begin tapering its bond-buying program before year-end. The market had largely expected Powell to announce the start of the tapering program in September, and the unexpectedly dovish stance weighed heavily on the dollar.
Amid the upswing in oil prices, market watchers remained cautious ahead of the OPEC+ alliance meeting scheduled for Sept. 1.
However, ING analysts said in a note: “We do not foresee any fireworks from the group following the more recent recovery in prices and we expect that they will continue the easing of their supply cuts as planned.”
Oil Prices Recover Slightly Amidst Demand Concerns in U.S. and China
Oil Prices Continue Slide as Market Skepticism Grows Over OPEC+ Cuts
Global oil markets witnessed a continued decline on Wednesday as investors assessed the impact of extended OPEC+ cuts against a backdrop of diminishing demand prospects in China.
Brent crude oil, the international benchmark for Nigerian crude oil, declined by 63 cents to $76.57 a barrel while U.S. WTI crude oil lost 58 cents to $71.74 a barrel.
Last week, the Organization of the Petroleum Exporting Countries and its allies, collectively known as OPEC+, agreed to maintain voluntary output cuts of approximately 2.2 million barrels per day through the first quarter of 2024.
Despite this effort to tighten supply, market sentiment remains unresponsive.
“The decision to further reduce output from January failed to stimulate the market, and the recent, seemingly coordinated, assurances from Saudi Arabia and Russia to extend the constraints beyond 1Q 2024 or even deepen the cuts if needed have also fallen to deaf ears,” noted PVM analyst Tamas Varga.
Adding to the unease, Saudi Arabia’s decision to cut its official selling price (OSP) for flagship Arab Light to Asia in January for the first time in seven months raises concerns about the struggling demand for oil.
Amid the market turmoil, concerns over China’s economic health cast a shadow, potentially limiting fuel demand in the world’s second-largest oil consumer.
Moody’s recent decision to lower China’s A1 rating outlook from stable to negative further contributes to the apprehension.
Analysts will closely watch China’s preliminary trade data, including crude oil import figures, set to be released on Thursday.
The outcome will provide insights into the trajectory of China’s refinery runs, with expectations leaning towards a decline in November.
Russian President Vladimir Putin’s diplomatic visit to the United Arab Emirates and Saudi Arabia has added an extra layer of complexity to the oil market dynamics.
Discussions centered around the cooperation between Russia, the UAE, and OPEC+ in major oil and gas projects, highlighting the intricate geopolitical factors influencing oil prices.
U.S. Crude Production Hits Another Record, Posing Challenges for OPEC
U.S. crude oil production reached a new record in September, surging by 224,000 barrels per day to 13.24 million barrels per day.
The U.S. Energy Information Administration reported a consecutive monthly increase, adding 342,000 barrels per day over the previous three months, marking an annualized growth rate of 11%.
The surge in domestic production has led to a buildup of crude inventories and a softening of prices, challenging OPEC⁺ efforts to stabilize the market.
Despite a decrease in the number of active drilling rigs over the past year, U.S. production continues to rise.
This growth is attributed to enhanced drilling efficiency, with producers focusing on promising sites and drilling longer horizontal well sections to maximize contact with oil-bearing rock.
While OPEC⁺ production cuts have stabilized prices at relatively high levels, U.S. producers are benefiting from this stability.
The current strategy seems to embrace non-OPEC non-shale (NONS) producers, similar to how North Sea producers did in the 1980s.
Saudi Arabia, along with its OPEC⁺ partners, is resuming its role as a swing producer, balancing the market by adjusting its output.
Despite OPEC’s inability to formally collaborate with U.S. shale producers due to antitrust laws, efforts are made to include other NONS producers like Brazil in the coordination system.
This outreach aligns with the historical pattern of embracing rival producers to maintain control over a significant share of global production.
In contrast, U.S. gas production hit a seasonal record high in September, reaching 3,126 billion cubic feet.
However, unlike crude, there are signs that gas production growth is slowing due to very low prices and the absence of a swing producer.
Gas production increased by only 1.8% in September 2023 compared to the same month the previous year.
While the gas market is in the process of rebalancing, excess inventories may persist, keeping prices low.
The impact of a strengthening El Niño in the central and eastern Pacific Ocean could further influence temperatures and reduce nationwide heating demand, impacting gas prices in the coming months.
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