Oil futures moved higher Monday, finding support on concerns about output in the Gulf of Mexico in the aftermath of Hurricane Ida.
“While offshore output typically returns in a matter of days, that timeline has been much slower in Ida’s aftermath,” said Robbie Fraser, global research and analytics manager at Schneider Electric. “Still, there are signs of improvement, as roughly 50% of offshore output appears to be returning online to start the week, compared to less than 25% a week earlier.”
Indeed, Gulf of Mexico output has been slow to come back after Ida made landfall on the Louisiana Gulf Coast on Aug. 29. The Bureau of Safety and Environmental Enforcement on Sunday evening said 48.6% of Gulf of Mexico oil output, equal to 883,000 barrels a day of production, remained shut in. The BSEE estimated that more than 54% of natural-gas output in the Gulf was also shut in.
“Inventories are likely to be further squeezed in the coming weeks, extending an existing deficit to the five-year average,” said Fraser, in a daily note.
“Looking ahead, Tropical Storm Nicholas could pose new challenges as it moves into the Gulf, potentially complicating current recovery efforts,” he said.
West Texas Intermediate crude for October delivery rose 51 cents, or 0.7%, to $70.23 a barrel on the New York Mercantile Exchange. November Brent crude, the global benchmark, was up 36 cents, or 0.5%, at $73.28 a barrel on ICE Futures Europe.
“WTI is starting the week on the front foot, climbing above the $70 level for the first time in over a week,” said Ricardo Evangelista, senior analyst at ActivTrades, in a note.
U.S. production, following the damage caused by Hurricane Ida to infrastructure in the Gulf of Mexico, has dropped by about 1.4 million barrels a day since late August, he said.
“Meanwhile, the consensus, despite the uncertainty caused by the growing number of coronavirus cases, is that oil demand will continue to increase in the run-up to the end of the year, in a dynamic that could support further increases in price,” Evangelista said.
Oil remained higher after the Organization of the Petroleum Exporting Countries boosted its forecast for growth in crude demand next year. OPEC now expects demand to grow by 4.2 million barrels a day next year, up nearly 900,000 barrels a day from its previous forecast (see table below).
World oil demand is estimated at 100.8 million barrels a day in 2022, exceeding pre-pandemic levels, OPEC said.
Back on Nymex, the October contract for gasoline traded nearly flat at $2.15 a gallon, while October heating oil tacked on 0.4% to nearly $2.16 a gallon.
October natural gas traded at $5.14 per million British thermal units, up 4.2%.
Prices for natural gas rallied back to their highest levels since February 2014.
“Most offshore natural gas production remains offline while above-normal temperatures are predicted to continue across the eastern and central U.S. through the end of the month,” said Christin Redmond, global commodity analyst at Schneider Electric. “This is expected to reduce the storage injection pace as power generation demand ramps up, while the market remains short supply.”