Commodities
US Hurricane Fears Drive Oil Prices Up Over 1%
By Mike Dunn
September 12, 2024
The oil market saw a significant increase in contracts, with both benchmarks, West Texas Intermediate (WTI) and Brent crude, rising by over 2% in the previous session. The surge can be attributed to disruptions caused by Hurricane Francine's landfall in southern Louisiana on Wednesday, which led to the shutdown of offshore platforms in the U.S. Gulf of Mexico and disruption of refinery operations along the coast.
According to Priyanka Sachdeva, a senior market analyst at Singapore-based brokerage Phillip Nova, "Both WTI and Brent seem to have found some ground amid worries of disrupted U.S. oil supplies." This area accounts for nearly 15% of total U.S. oil production; any disturbances could potentially tighten supplies in the near term.
However, as Hurricane Francine is expected to dissipate after making landfall, focus within the oil markets has once again shifted towards lower demand concerns. Data released last week from the Energy Information Administration showed that U.S. oil stockpiles increased across all categories due to an uptick in crude imports and decreased exports.
Moreover, gasoline demand slumped down, reaching its lowest point since May, while distillate fuel demand also fell alongside declining refinery runs. As it stands currently, the US remains the world's largest consumer of oil.
Despite concerns regarding supply shortages due to Hurricane Francine's impact on production facilities onshore and offshore alike, medium-term trends remain bearish for WTI crude, according to Kelvin Wong, Senior Market Analyst at OANDA, who cites weak Chinese demand coupled with 'growth scare' concerns within America as supporting factors for this trend.
Earlier this week, the Organization of Petroleum Exporting Countries (OPEC) revised their forecast for global growth downwards, not just for next year but also for 2024, marking their second consecutive downward revision suggesting a bleak outlook moving forward.
Oil traders are now keenly awaiting the International Energy Agency's monthly report scheduled later this week, hoping it might shed light on the weakening demand outlook, as per ANZ Research's note on Thursday.
The interplay between supply disruptions and falling demand paints a complex picture for the oil market. While short-term supply shocks can lead to price hikes, persistently weak demand may exert downward pressure on prices in the medium to long term.
This story was reported by Katya Golubkova in Tokyo, Emily Chow, and Jeslyn Lerh in Singapore; edited by Christian Schmollinger and Christopher Cushing. As it remains unclear how these dynamics will play out over time, investors are advised to stay vigilant of further developments that could impact oil markets globally.
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