U.S. West Texas Intermediate and international-benchmark Brent crude oil futures are trading higher on Monday as energy companies continue to struggle with output halted after Hurricane Ida made landfall about two weeks ago. Stronger demand expectations are also providing support as well as worries about a new tropical storm brewing in the Gulf of Mexico.
Offshore Production Halted, but Refiners Coming Back
According to reports, about three-quarters of the offshore oil production in the U.S. Gulf of Mexico has been immobilized since late August. Meanwhile, U.S. refiners are coming back faster than oil production from the impact of Hurricane Ida, a reverse of past storm recoveries. Most of the nine Louisiana refineries impacted by the storm have restarted or were restarting on Friday.
“Hurricane Ida was unique in having a net bullish impact on U.S. and global oil balances – with the impact on demand smaller than on production,” Goldman Sachs analysts said in a note dated September 9.
Goldman estimated that the storm caused U.S. oil inventories to decline by about 30 million barrels and could push up U.S. refining margins and further widen the price spread between WTI and Brent.
US Rig Count Rises Despite Hurricane Ida: Baker Hughes
Energy Services firm Baker Hughes reported that U.S. energy firms added oil and natural gas rigs for a fifth time in six weeks the week-ending September 10 as offshore oil units in the Gulf of Mexico slowly started to return after Hurricane Ida slammed into the coast.
The oil and gas rig count, an early indicator of future output, rose 6 to 503 in the week to September 10, Baker Hughes said. U.S. oil rigs rose 7 to 401 this week, while gas rigs fell 1 to 101. That puts the total oil rig count up 249 rigs, or 98%, over this time last year.
Major Players Increase Bullish Bets
Money managers raised their net long U.S. crude futures and options positions in the week to September 7, the U.S. Commodity Futures Trading Commission (CFTC) said on Friday.
Looking ahead, traders will have the opportunity to react to potential revisions to the oil demand outlook from the Organization of the Petroleum Operating Countries (OPEC) and the International Energy Agency (IEA) as coronavirus cases continued to rise. OPEC will likely revise its 2022 forecast lower on Monday, two people familiar with the matter said.
Over the short-run, crude oil prices are likely to show a slight upside bias until Gulf of Mexico oil production comes back to near full capacity. Right now, no one is sure when that will happen. Longer-term traders are awaiting clarification of the demand picture as rising coronavirus cases continue to dominate the news.