Weak Demand Dips Oil Prices Despite Gulf Storm Disruptions

On Monday evening, the U.S. Coast Guard ordered a complete cessation of operations at Brownsville and several other small Texas ports as Tropical Storm Francine swept across the Gulf. Despite this, Corpus Christi port remained operational but imposed significant restrictions.

The National Hurricane Center (NHC) has forecasted that the tropical storm will intensify significantly over the next few days and is expected to escalate into a hurricane by late Monday or early Tuesday.

In response to these predictions, Exxon Mobil announced its decision to halt output at its Hoover offshore production platform. Similarly, Shell also suspended drilling operations at two platforms while Chevron started shutting in oil and gas output on two of its offshore production platforms.

ANZ analysts have estimated that around 125,000 barrels per day (bpd) of oil capacity are facing potential disruption due to these developments. This data was obtained from NHC reports.

However, despite these disruptions in supply chain caused by adverse weather conditions affecting key areas of operation for major energy companies such as Exxon Mobil and Chevron; signs of weakening global demand coupled with expectations of continuing oversupply continue to exert downward pressure on market prices.

Data released on Monday showed an acceleration in China's consumer inflation rate in August - marking it as the fastest pace experienced within half a year. However domestic demand remains weak whilst producer price deflation continues worsening – further indicating economic fragility within one of world’s largest economies.

"Signs of weakness seen both within U.S and Chinese markets have spurred bearish sentiments amongst investors resulting in money managers demonstrating least bullish stance towards crude oil recorded in more than 13 years," ANZ reported

Global commodity traders Gunvor and Trafigura predict that weakened Chinese demand along with persistent global oversupply could see oil prices oscillating between $60-$70 per barrel. These insights were shared during Asia Pacific Petroleum Conference (APPEC) held on Monday where speakers discussed how China’s transition towards lower-carbon fuels and a sluggish economy were impacting oil demand growth.

According to Daan Struyven, head of oil research at Goldman Sachs, China's annual demand growth has slowed from around 500,000-600,000 bpd in the five years preceding COVID-19 pandemic to merely 200,000 bpd currently.

On Tuesday market participants will be keenly watching for the monthly oil market report from Organization of Petroleum Exporting Countries (OPEC) along with U.S Energy Information Administration’s short term energy outlook which comprises forecasts about global market and U.S crude output. This information was reported by Georgina McCartney in Houston and Katya Golubkova in Tokyo.