Oil prices saw a slight increase on September 10, 2024, as anticipation of a hurricane impacting the US Gulf Coast stirred concerns about potential disruptions to production and refining operations. Brent crude futures edged up by 78 cents, settling at $71.84 per barrel, marking an increase of 1.1 percent. Meanwhile, West Texas Intermediate (WTI) crude also experienced growth, rising by $1.04 to reach $68.71, which is about 1.5 percent higher than previous valuations.
This minor recovery follows a challenging week where both Brent and diesel futures hit their lowest prices since December 2021, and WTI fell to its lowest since June 2023. Amid this downturn, US petrol futures plummeted to their lowest levels since February 2021, prompting concerns over the overall stability of the market.
With Tropical Storm Francine intensifying over the Gulf of Mexico, oil and gas producers along the Gulf Coast began to implement precautionary measures by evacuizing staff and halting drilling operations. The US National Hurricane Center has projected Francine will strengthen and potentially hit Louisiana by Wednesday, disturbing approximately 50 percent of the country’s refining capacity, as noted by the US Energy Information Administration (EIA).
Analysts are pointing to this approaching storm as the primary catalyst for the rising oil prices. John Evans, an analyst at PVM, stated, "A small recovery in prices is under way, inspired by hurricane warnings threatening the US Gulf Coast." Despite this uptick, he noted, the broader market conversation revolves around demand prospects and Opec+ responses.
Opec+, which encompasses the Organization of the Petroleum Exporting Countries and its allies including Russia, recently decided to delay a planned output increase of 180,000 barrels per day originally slated for October. This decision responds to rapidly declining crude prices, reflecting the cartel's cautious stance amid fluctuative market conditions.
Compounding these issues, Libya, another Opec member, declared force majeure on numerous crude shipments being loaded from the port of Es Sider. This development stems from political strife affecting the central bank and oil revenue distribution, contributing to uncertainty within the global oil market.
On the demand side, recovery efforts from the recent sell-off are underscored by mixed feelings among investors. Some remain optimistic about a potential "soft landing" for the US economy, which suggests the possibility of controlling inflation without triggering high unemployment. With the US government set to release key inflation data this week, market participants are hopeful for positive news.
James Knightley, chief international economist at ING, weighed in, saying, "A US recession is not inevitable, but the Federal Reserve needs to start cutting interest rates quickly and aggressively to avoid one." This statement aligns with upcoming meetings of US central bank policymakers, who have indicated readiness to initiate interest rate reductions, anticipating they could spur economic growth and bolster demand for oil.
Nevertheless, not all economic indicators point toward recovery. Morgan Stanley recently adjusted its forecast for Brent prices downward for the fourth quarter, predicting it would drop from $80 to $75 per barrel. The global commodity trading firms Gunvor and Trafigura echoed this sentiment, projecting oil prices may hover between $60 and $70 per barrel, primarily due to lackluster demand from China and global oversupply.
The outlook for the Asian refining sector also appears bleak, with margins dipping to their lowest seasonal level since 2020. At the Appec energy conference, industry experts remarked on China's shift toward more eco-friendly fuels and its struggling economy, which is clearly undermining oil demand growth. This downward trend is critically impacting the world’s largest crude importer.
With international oil markets swirling amid these dynamics, stakeholders are keeping close tabs on the situation as both supply-side disruptions and demand fluctuations could have considerable ramifications for the future price of oil. All eyes remain on the impending hurricane and the response from Opec+ as they navigate this turbulent environment.
