Crude oil prices continued their upward trajectory from Thursday, showing signs of breaking a three-week losing streak if current gains persist. However, the market’s momentum may be in jeopardy as Gulf of Mexico oil producers prepare to resume operations following Hurricane Francine.
The hurricane had led to the shutdown of up to 42% of Gulf production, equating to approximately 730,000 barrels per day. This disruption had been a significant factor in supporting oil prices. Nonetheless, UBS analysts suggest the total production impact was more severe, affecting 1.5 million barrels per day. This could potentially lower the region’s monthly output by 50,000 barrels per day.
Despite this, oil prices displayed unexpected resilience against the latest International Energy Agency (IEA) report, which downgraded its oil demand growth forecast by 70,000 barrels per day to 900,000 barrels per day. The IEA attributed this downward revision to decreased demand from China.
Typically, such revisions from the IEA prompt immediate market reactions. However, the ongoing disruptions in U.S. production due to Hurricane Francine appear to have mitigated the impact. Additionally, market participants may have already accounted for the IEA’s revised forecast, following a similar adjustment by OPEC earlier in the week.
IG market strategist Yeap Jun Rong noted, “A previous dip to an almost three-year low necessitated a near-term recovery as traders adjust for the short-term supply disruptions caused by Hurricane Francine.”
Looking ahead, Commonwealth Bank of Australia analyst Vivek Dhar highlighted that key themes for the rest of the year include weakening Chinese demand and OPEC+ strategies to potentially defend market share amidst this sluggish demand environment.
Oil prices also received a boost this week from speculation that the U.S. Federal Reserve might initiate interest rate cuts at its upcoming meeting on September 17 and 18.
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