Oil Prices Rise Amid Hurricane Concerns

By Scott DiSavino
NEW YORK (Reuters) – Oil prices rose about 1% on Monday due to concerns over a hurricane expected to hit Louisiana on Wednesday, potentially disrupting production and refining along the U.S. Gulf Coast.

Brent futures increased by 78 cents, or 1.1%, settling at $71.84 a barrel, while U.S. West Texas Intermediate (WTI) crude gained $1.04, or 1.5%, to close at $68.71.

Last Friday, both Brent and U.S. diesel futures hit their lowest prices since December 2021. WTI also closed at its lowest since June 2023, while U.S. gasoline futures reached their lowest since February 2021.

U.S. oil and gas producers along the Gulf Coast began evacuating staff and reducing drilling in preparation for Tropical Storm Francine, which is projected to strengthen into a hurricane on Tuesday. The Gulf Coast accounts for about 50% of the country's refining capacity, according to the U.S. Energy Information Administration (EIA).

John Evans, an analyst at PVM, noted, "A small recovery in prices is under way … inspired by hurricane warnings that might threaten the U.S. Gulf Coast, but the wider conversation remains on where demand will come from and what OPEC+ can do." OPEC+ includes the Organization of the Petroleum Exporting Countries (OPEC) and allies such as Russia.

In Libya, an OPEC member, the National Oil Corp declared force majeure on several crude cargoes loading from the port of Es Sider, with oil production affected by a political standoff over the central bank and oil revenue.

The OPEC+ group has decided to delay a planned output increase of 180,000 barrels per day for October by two months, in response to falling crude prices.

On the other hand, some analysts see optimism regarding a soft landing scenario for the U.S. economy, where inflation is controlled without a recession or a sharp rise in unemployment. The U.S. government is expected to release an important inflation report later this week.

James Knightley, chief international economist at ING, stated, "A U.S. recession is not inevitable, but the Federal Reserve needs to start cutting interest rates quickly and aggressively to avoid one."

Policymakers at the U.S. central bank have indicated they are prepared to initiate a series of interest rate cuts at the Fed's September 17-18 policy meeting, citing a cooling labor market that may worsen without lower borrowing costs.

Lower interest rates can stimulate economic growth and boost oil demand. The Fed has aggressively increased rates in 2022 and 2023 to combat rising inflation.

BEARISH FORECASTS

However, not all predictions are positive for crude prices.
Morgan Stanley has lowered its Brent price forecast for the fourth quarter from $80 to $75 a barrel, indicating prices may stay around that level unless demand weakens further.

Global commodity traders such as Gunvor and Trafigura anticipate oil prices may trade between $60 and $70 per barrel due to sluggish demand from China and ongoing global oversupply.

China's transition to lower-carbon fuels, combined with a sluggish economy, is dampening oil demand growth from the world's largest crude importer, according to speakers at the APPEC energy conference. Refining margins in Asia have declined to their lowest seasonal levels since 2020.