U.S. West Texas Intermediate and international-benchmark Brent crude oil futures spiked to a new high for the year after a developing hurricane in the Gulf of Mexico caused the evacuation of two Gulf of Mexico oil platforms, disrupting supply operations.
According to reports, Anadarko Petroleum had evacuated and shutdown production at two oil platforms in the Gulf of Mexico amid reports that tropical storm Gordon had strengthened into a hurricane, and is expected to make landfall in a couple of days.
At the start of the week after the long U.S. holiday week-end, crude oil was already being underpinned by supply issues after global markets had tightened throughout the month of August. With investors anticipating less supply from Iran due to upcoming U.S. sanctions, and Libya and Venezuela producing far-less than expected, the markets remain vulnerable to unexpected supply disruptions.
Current conditions have put Brent crude oil just a tad under the psychological $80 level. Given the current upside momentum, this price level could easily be achieved later today especially if additional U.S. Gulf oil operations are shutdown once the hurricane’s path and strength are determined.
The hedge funds are long the market and are likely to add to their positions as the list of bullish headlines keeps getting longer. Additional help is coming from aggressive speculators playing the hurricane scare.
According to Barclays bank, worries over supply issues are becoming more evident. “U.S. producers are resisting temptation and exercising capital discipline, OPEC and Russia have convinced market participants they are managing the supply of over half of global production, the U.S. is using sanctions more actively, and several key OPEC producers are at risk of being failed states.”
BNP Paribas says, “Crude oil export losses from Iran due to U.S. sanctions, production decline in Venezuela and episodic outages in Libya are unlikely to be offset entirely by corresponding rises in OPEC production.”
We’re looking for the bullish tone to continue throughout the session and perhaps for the next several days. The usual supply/demand issues are underpinning the market and controlling the main up trend. Speculators, reacting to the hurricane news are triggering the spike in prices.
The hurricane news is expected to cause volatility and a possible two-sided trade as we learn more about its strength and direction, however, the issues over reduced supply should continue to support higher prices even if the hurricane premium disappears.