Oil Falls as Hurricane Ida Damage Avoids Worst-Case Scenario

© Reuters.

By Geoffrey Smith

AiVIF.com -- Crude oil prices fell on Monday, as concern at rumors of damage caused by Hurricane Ida in the Gulf of Mexico eased a little.

CNBC reported on Sunday that a Coast Guard flyover had established that two platforms operated by Royal Dutch Shell (LON:RDSa) were both still properly moored, refuting earlier talk of their coming adrift over the weekend. That suggests that output should be restored reasonably quickly once the storm has passed.

By 5:30 AM ET (0900 GMT), U.S. crude futures were down 0.4% at $68.48 a barrel. Brent futures, the global benchmark, were down 0.6% at $71.27. Both contracts had risen more than 10% last week as the storm zeroed in on the refining complexes around Louisiana.

There was also a measure of relief that closures to Gulf of Mexico refineries were not as widespread as seemed possible before the weekend. Analysts estimated that nearly 2 million barrels a day of refining capacity had been taken offline. Disruptions to Louisiana’s power grid may also delay the return to operations at some of those plants. But the bigger refineries of Texas seem to have escaped largely unscathed.

As such, U.S. Gasoline RBOB Futures were at $2.1365 a gallon, up 0.8% in the overnight session but still down some 7%-8% from last week’s peak, hit when the storm was approaching.

Elsewhere, fears that the spread of Covid-19 in the U.S. and elsewhere might tempt major exporters not to go ahead with a planned output increase this week also eased. Reuters reported unnamed sources within OPEC saying that it is likely to stick to its plan to add another 400,000 barrels of supply each month until all of last year’s emergency output cut is unwound.

OPEC member Kuwait had cast doubt on sticking to the plan in an interview over the weekend, citing the impact of the latest wave of Covid on economies in Asia and the U.S.  Reports of production being shut in across OPEC member Libya, where the National Oil Company is in a dispute with the UN-backed government, have not offered any meaningful support.

However, the Covid-19 threat to global demand refuses to go away. The European Union will likely reimpose a ban on non-essential travel from the U.S., in response to the surge in infections across the latter.

Demand for fuel is in any case likely to weaken over the next couple of weeks in line with usual seasonal patterns, as the summer tourism season winds down.

Financial market participants have already pared their bets on crude in recent weeks as the Delta variant of Covid-19 started to make its presence felt. In the week through Tuesday, they cut their net long positions in U.S. crude futures to their lowest level since 2019, according to data released on Friday by the Commodity Futures Trading Commission.