Oil prices experienced a notable decline of over 2% on Friday, primarily due to decreasing concerns about potential supply disruptions stemming from Hurricane Rafael, which was swirling moderately around the Gulf of Mexico. Traders appeared to be less worried about the hurricane’s impact on oil production as forecasts indicated the storm was weakening, allowing for some respite from the troubling market fluctuations of past weeks.
Futures contracts for West Texas Intermediate (WTI) crude oil, the benchmark for U.S. oil prices, fell by 2.7%, equaling $1.98, closing at $70.35 per barrel. Similarly, Brent crude, the global benchmark, dropped by 2.3%, or $1.76, to settle at $73.87 per barrel. These figures reflect the latest movements noted by the Al-Attiyah Foundation’s Weekly Energy Market Review.
To prepare for Hurricane Rafael's anticipated arrival, energy producers had preemptively shut down over 23% of the Gulf of Mexico oil output. The storm caused destruction as it passed through Cuba earlier this week, but by Friday, it had weakened to Category 2 status according to the latest advisory from the U.S. National Hurricane Center.
Analysts noted, “Threats of supply outages due to Hurricane Rafael are subsiding as the storms shifts to circling in the center of the Gulf of Mexico for the next five days or so,” stated Alex Hodes, an analyst from StoneX brokerage, pointing to the diminishing urgency among traders to secure oil supply under potentially threatening conditions.
Despite this slip, the broader picture for oil prices suggests they experienced week-over-week gains exceeding 1%. Such increases come against the backdrop of rising expectations around tighter U.S. sanctions on oil producers Iran and Venezuela under the incoming administration of President-elect Donald Trump, raising apprehensions of reduced oil supplies entering already strained global markets.
Simultaneously, concerns about demand were amplified by recent developments from China, the world’s largest oil importer. The country’s most recent economic stimulus packages have failed to impress oil traders. Although the Chinese government announced measures aimed at easing debt repayment burdens for local governments, these actions are perceived as insufficient to directly boost oil demand. UBS analyst Giovanni Staunovo remarked, “I guess some market participants were hoping for more stimulus measures coming from China. Hence, the disappointment weighing on prices earlier today.”
Further complicative factors arise as deflationary pressures continue to plague the Chinese economy, which has significantly impacted oil demand. Recent customs data revealed October marked the sixth consecutive month of year-on-year declines in China's crude oil imports, highlighting the pressures undermining consumption expectations.
On the liquefied natural gas (LNG) front, prices have also experienced fluctuations, with the average cost for December delivery to Northeast Asia dipping to $13.40 per million British thermal units (mmBtu), down from $13.80 mmBtu the previous week. With temperatures across major cities such as Seoul and Shanghai predicted to remain above average through late December, demand for LNG could potentially diminish as the winter season nears.
Interestingly, Chinese LNG imports for October reached their highest ever figures, approximately 6.5 million metric tons, which could be interpreted as strategic stocking up rather than indicative of sustained demand growth over the winter.
A marked observation was made concerning the LNG market's reception of President Trump’s return to power, which has largely left pricing dynamics largely unchanged. Nevertheless, traders are watching closely how his policies might affect energy exports, particularly as they pertain to Joe Biden's interruptions on new LNG export approvals, alongside broader geopolitical landscapes involving the Middle East, China, and Russia.
Across the pond, Europe is beginning to feel the squeeze as gas inventories dwindle, attributed to both chilly weather conditions and recent lulls in wind and solar energy outputs. This situation has started creating upward price pressures, particularly at the Dutch TTF hub, as market participants prepare for the potential challenges linked with energy supplies amid fluctuated weather conditions.
