Crude oil prices fell on Monday, this was followed by the rumors of damage caused by Hurricane Ida in the Gulf of Mexico eased a little.
Oil prices dropped from a four-week high on Monday as Hurricane Ida weakened after forcing precautionary shutdowns of U.S. Gulf oil production, and attention turned to an OPEC meeting on Wednesday to discuss a further output boost.
CNBC reported on Sunday that a Coast Guard flyover had established that two platforms operated by Royal Dutch Shell (LON:RDSa) were both still properly moored, refuting earlier talk of their coming adrift over the weekend. That suggests that output should be restored reasonably quickly once the storm has passed.
By 5:30 AM ET (0900 GMT), U.S. crude futures were down 0.4% at $68.48 a barrel. Brent futures, the global benchmark, were down 0.6% at $71.27. Both contracts had risen more than 10% last week as the storm zeroed in on the refining complexes around Louisiana.
Within 12 hours of coming ashore, the storm had weakened into a Category 1 hurricane. Nearly all offshore Gulf oil production, or 1.74 million barrels per day, was suspended in advance of the storm.
Brent crude was down 35 cents or 0.5% at $72.35 by 0815 GMT, having reached $73.69 earlier, the highest since Aug. 2. U.S. crude fell 69 cents or 1% to $68.05, having earlier touched $69.64, the highest since Aug. 6.
“Hurricane Ida will dictate oil’s near-term direction,” said Jeffrey Halley, senior market analyst at OANDA. “If Ida weakens and its path of destruction is lower than expected, oil’s rally will temporarily lose momentum here.”
While crude fell in anticipation of a quick supply recovery, U.S. gasoline was up almost 3% as power outages added to refinery closures on the Gulf coast and traders weighed the possibility of prolonged disruptions.
“It’s still early days,” said Vivek Dhar, an analyst at Commonwealth Bank of Australia. “Oil products, like gasoline and diesel, are likely to see prices rise more acutely from refinery outages especially if there are difficulties in bringing refineries and pipelines back online.”
There was also a measure of relief that closures to Gulf of Mexico refineries were not as widespread as seemed possible before the weekend. Analysts estimated that nearly 2 million barrels a day of refining capacity had been taken offline. Disruptions to Louisiana’s power grid may also delay the return to operations at some of those plants. But the bigger refineries of Texas seem to have escaped largely unscathed.
Brent has rallied almost 40% this year, supported by supply cuts by the Organization of the Petroleum Exporting Countries and allies, known as OPEC+, and some demand recovery from last year’s pandemic-induced collapse.
Elsewhere, fears that the spread of Covid-19 in the U.S. and elsewhere might tempt major exporters not to go ahead with a planned output increase this week also eased. Reuters reported unnamed sources within OPEC saying that it is likely to stick to its plan to add another 400,000 barrels of supply each month until all of last year’s emergency output cut is unwound.
OPEC member Kuwait had cast doubt on sticking to the plan in an interview over the weekend, citing the impact of the latest wave of Covid on economies in Asia and the U.S. Reports of production being shut in across OPEC member Libya, where the National Oil Company is in a dispute with the UN-backed government, have not offered any meaningful support.
However, the Covid-19 threat to global demand refuses to go away. The European Union will likely reimpose a ban on non-essential travel from the U.S., in response to the surge in infections across the latter.
Demand for fuel is in any case likely to weaken over the next couple of weeks in line with usual seasonal patterns, as the summer tourism season winds down.
Financial market participants have already pared their bets on crude in recent weeks as the Delta variant of Covid-19 started to make its presence felt. In the week through Tuesday, they cut their net long positions in U.S. crude futures to their lowest level since 2019, according to data released on Friday by the Commodity Futures Trading Commission.
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