Oil Prices Rise Amid Hurricane Concerns

By Scott DiSavino

NEW YORK (Reuters) – Oil prices rose about 1% on Monday due to fears that a hurricane expected to hit Louisiana on Wednesday could disrupt production and refining along the U.S. Gulf Coast.

Brent (LCOc1) futures increased by 78 cents (1.1%) to settle at $71.84 a barrel, while U.S. West Texas Intermediate (WTI) crude jumped by $1.04 (1.5%) to settle at $68.71.

On Friday, Brent and U.S. diesel futures closed at their lowest prices since December 2021, with WTI at its lowest since June 2023 and U.S. gasoline futures at their lowest since February 2021.

The U.S. oil and gas producers along the Gulf Coast have begun evacuating staff and reducing drilling to prepare for Tropical Storm Francine, which is expected to strengthen to a hurricane by 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 underway, inspired by hurricane warnings that may 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 shipments from the port of Es Sider, with production hampered by a political standoff regarding the central bank and oil revenue.

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

Analysts suggest that optimism regarding a soft landing for the U.S. economy is supporting crude prices. The U.S. government is set 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.”

U.S. central bank policymakers have indicated readiness to initiate a series of interest rate cuts during the Fed’s September 17-18 policy meeting, indicating a cooling labor market that could worsen without lower borrowing costs.

Lower rates could stimulate economic growth and increase demand for oil, as the Fed had raised rates aggressively in 2022 and 2023 to combat inflation.

Bearish Forecasts

However, not all predictions are optimistic for crude prices.

Morgan Stanley has reduced its Brent price forecast for the fourth quarter to $75 a barrel from $80, predicting prices will likely remain stable unless demand decreases further.

Global commodity traders Gunvor and Trafigura anticipate oil trading between $60 and $70 per barrel due to weak demand from China and ongoing global oversupply.

Speakers at the APPEC energy conference noted that China’s transition to lower-carbon fuels and its sluggish economy are dampening oil demand growth in the world’s largest crude importer.

Refining margins in Asia have also dropped to their lowest seasonal levels since 2020.