Oil prices saw a notable uptick on Tuesday, driven by a weakening dollar and mounting concerns about the potential impact of Hurricane Idalia on energy supply and demand in Florida.
U.S. West Texas Intermediate (WTI) crude gained $1.07 or 1.3% to $81.17 per barrel by 6:42 p.m. while Brent crude oil grew by 98 cents, or 1.2% to $85.40 per barrel.
The dip in the U.S. dollar index on Tuesday followed the release of data indicating a decline in U.S. job openings in July. Analysts are suggesting that this softness in the labor market might influence the Federal Reserve to adopt a more measured approach to interest rate hikes.
A weakened dollar typically results in dollar-denominated oil becoming more affordable for investors holding other currencies, thereby boosting demand for oil.
At the same time, Hurricane Idalia is poised to intensify into a major hurricane, featuring maximum sustained winds of 125 miles per hour (201 kilometers per hour), just before making landfall on the northwest coast of Florida early on Wednesday, as reported by the U.S. National Hurricane Center (NHC).
Analyst Robert Yawger from Mizuho predicts that the hurricane’s impact will likely affect fuel distribution systems and lead to a reduction in fuel consumption in the affected regions, especially given its proximity to the Labor Day federal holiday on September 4.
Although Hurricane Idalia is not projected to directly impact major oil-producing platforms in the U.S. Gulf of Mexico, Chevron Corp has taken precautionary measures by evacuating some staff from three platforms in the region. It’s worth noting that production continues at Chevron-operated Gulf of Mexico oil and gas facilities.
Yawger also noted that while Idalia doesn’t pose a significant supply risk, it underscores the escalating risk of potential future outages in the Gulf of Mexico during what is expected to be a busy hurricane season.
Also, supply concerns have been exacerbated by a recent fire at a Marathon Petroleum (MPC.N) refinery due to a chemical leak igniting two massive storage tanks filled with naphtha. On Monday, Marathon Petroleum announced its plans to restart units at the 596,000-barrel-per-day (bpd) refinery in Garyville, Louisiana, which is the third-largest in the United States.
Anticipations point to a drop in U.S. crude oil inventories in the most recent week, as per a preliminary Reuters poll conducted on Monday. Crude stocks estimates from the American Petroleum Institute will be released later on Tuesday, with official government figures slated for Wednesday.