Oil futures declined on Friday, pulling back from seven-week highs as crude production in the Gulf of Mexico makes a slow comeback from Hurricane Ida, but U.S. and global benchmark crude prices scored solid weekly gains for a fourth week in a row.
“Crude oil production that was shut by Hurricane Ida continues to be restored, so refinery demand is being increasingly met from producers, trimming a bit the price premiums of previous days,” said Nishant Bhushan, oil markets analyst at Rystad Energy, in a daily note.
The hurricane news had removed the Organization of the Petroleum Exporting Countries from the market spotlight, but the group continues to “pump more oil as per their latest production agreement, and that is reflected in global supply, with prices taking notice,” said Bhushan.
Demand concerns have also climbed. Japan has already extended stricter lockdown measures in an attempt to suppress the further spread of COVID-19 and China also reported new outbreak of Covid-19 in the Fujian province, he said.
“Now, with supply strengthening and some possible dents to demand recovery in Asian markets, oil prices naturally cut the excess fat that the U.S hurricane season helped accumulate,” Bhushan said.
West Texas Intermediate crude for October delivery CL00,
For the week, WTI futures saw a rise of 3.2%, while Brent was up 3.3% — with both up a fourth week in a row, according to Dow Jones Market Data. On Thursday, Brent closed at a seven-week high, while WTI ended unchanged, a day after it closed at its highest since July 30.
Prices finished the week higher amid concerns that some energy production in the Gulf is still not coming on line and the possibility that we could see another storm in the region, said Phil Flynn, senior market analyst at The Price Futures Group.
“The Atlantic is still very active and another potential storm…could become an issue,” he told MarketWatch. “This is coming at the worst time as we’re still trying to recover from the last two hurricanes and we can’t really afford to lose anymore supply ahead of winter.”
An update Friday from Baker Hughes BKR,
“As Gulf output recovers, that will put more pressure on WTI, and that could lead to a pullback in the near term” for oil, Marshall Steeves, energy markets analyst at IHS Markit, told MarketWatch. “Beyond that, demand growth will again be significant to price discovery.”
The Bureau of Safety and Environmental Enforcement late Friday estimated that 23.2% of crude production in the Gulf of Mexico remains shut in, equal to around 422,078 barrels a day. More than 34% of natural-gas production is also shut in, equivalent to 765.54 million cubic feet a day of output, according to the BSEE.
“While oil-market sentiment has clearly inflected more positively over recent weeks — over 27 million barrels have evaporated from the U.S. supply side of the equation — Hurricane Ida is not the driving force behind the bullishness,” said Michael Tran, analyst at RBC Capital Markets, in a note.
He observed that while WTI, the U.S. benchmark, has recently outperformed Brent, the discount for North American barrels remains wider than $3 a barrel, “meaning that though domestic balances have tightened considerably, the constructive tone to the market is being driven by more structural themes than simply hurricanes.”
Back on Nymex Friday, October gasoline RBV21,
October natural gas NGV21,
Read: What’s next for natural gas with prices at their highest in over 7 years
