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.
Oil Gains 1 Percent on Possible Tight Supply
Oil prices rose on Tuesday as analysts pointed to signs of U.S. supply tightness, ending days of losses as global markets remain haunted by the potential impact on China’s economy of a crisis at heavily indebted property group China Evergrande.
Brent crude gained 95 cents or 1.3% to $74.87 a barrel by 0645 GMT, having fallen by almost 2% on Monday. The contract for West Texas Intermediate (WTI) , which expires later on Tuesday, was up 91 cents or 1.3% at $71.20 after dropping 2.3% in the previous session.
Global utilities are switching to fuel oil due to rising gas and coal prices, and lingering outages from the Gulf of Mexico after Hurricane Ada that imply less supply is available, ANZ analysts said.
“While slowing Chinese economic growth and uncertainty around the (U.S.) Fed’s tapering timetable weighed on market sentiment, other developments still point to higher oil prices,” ANZ Research said in a note.
Still, investors across financial assets have been rocked by the fallout from heavily indebted Evergrande (3333.HK) and the threat of a wider market shakeout in the longer term.
“Evergrande’s woes are threatening the outlook for the world’s second-largest economy and making some investors question China’s growth outlook and whether it is safe to invest there,” said Edward Moya, senior market analyst at OANDA.
While that view of the state of China’s economy is weighing on markets, the U.S. Federal Reserve is also expected to start tightening monetary policy – likely to make investors warier of riskier assets such as oil.
Crude Oil Drops as U.S Dollar Extends Gain
Oil prices declined on Monday after the United States Dollar rose to a three-week high and the U.S oil rig count increased amid drop in U.S. Gulf of Mexico output.
Brent crude oil, against which Nigerian crude oil is priced, sheds $1.03 or 1.37 percent to $74.31 per barrel at 9.38 am Nigerian time. While the U.S West Texas Intermediate oil declined by $1.18 or 1.64 per barrel to $70.79 a barrel.
The recent increase in dollar strength against global currencies has dragged on crude oil outlook as energy investors cut down on imports to avoid possible market headwinds. Strong U.S. dollar priced crude oil is more expensive for holders of other currencies.
U.S dollar rose to a three-week high after retail sales unexpected rose by 0.7 percent in the month of August. The increase bolstered expectations that the U.S Federal Reserve will start cuttiing down on asset purchases later this year.
“U.S. consumption is not slowing as quickly as it appeared a month ago despite the fading stimulus, and the Delta variant did not much affect the industries feeding into retail sales,” said Chris Low, chief economist at FHN Financial in New York. “The economy continued to hum in August.”
According to the researchers at ING Bank, strong US dollar over the last few days has provided some headwinds to the market.
Also, an increase in U.S rig count to 512 in the week ended September 17, 2021 clouded the oil market. Oil rige rose by 9, the highest since April 2020.
Still, as at Friday 23 percent of U.S. Gulf of Mexico crude output, or 422,078 barrels per day, remained shut, stated the Bureau of Safety and Environmental Enforcement.
Oil Slips With Energy Prices in Europe Halts Record Rally
Oil dipped toward $72 a barrel in New York after prices of energy commodities in Europe halted a record-breaking run.
West Texas Intermediate futures fell 0.6%, having reached the highest intraday level since early August on Wednesday. A rally in European gas and power prices to unprecedented levels was set to end as industries were starting to curb consumption. The surge in energy rates could temporarily boost diesel demand by as much as 2 million barrels a day as consumers switch fuels, according to Citigroup Inc.
Still, the bullish signals for oil are continuing to increase. U.S. crude inventories dropped by more than 6 million barrels last week to a two-year low, according to government figures, as coronavirus vaccination programs permit economies to reopen. Chevron Corp. Chief Executive Officer Mike Wirth warned that the world is facing high energy prices for the foreseeable future.
The investor optimism is showing up in key oil time spreads widening. Trading of bullish Brent options also surged to a two-month high on Wednesday.
Prices have been pushed higher in recent days “by supply outages combined with expectations of switching from gas to oil in the power sector,” said Helge Andre Martinsen, a senior oil market analyst at DNB Bank ASA. “We still believe in softer prices toward year-end and early next year as curtailed production returns and OPEC+ continues to increase production.”
Strong prices for gas, liquefied natural gas and oil are expected to last “for a while” as producers resist the urge to drill again, Chevron’s Wirth told Bloomberg News. Norway’s Equinor ASA said Thursday it also expects European gas prices to remain high over winter.
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