Oil prices rose by about 1% on Monday following a drop to multi-month lows last week, as concerns of an impending hurricane in Louisiana raised worries of potential disruptions to oil production and refining in the U.S. Gulf Coast. Brent futures increased by 0.8% to $71.63 per barrel, while U.S. West Texas Intermediate (WTI) crude rose by 1.2% to reach $68.45.
Despite the marginal hike, Brent futures remained in technically oversold territory for a fifth consecutive day, marking the first time since May 2024. Last Friday, both Brent and U.S. diesel futures closed at their lowest levels since December 2021, while WTI closed at its lowest point since June 2023 and U.S. gasoline futures concluded at their lowest since February 2021.
The U.S. National Hurricane Center forecasted that Tropical Storm Francine would likely intensify into a hurricane by Tuesday before making landfall in Louisiana on Wednesday. Given that the U.S. Gulf Coast represents approximately 60% of the country’s refining capacity, the potential impact on oil operations spurred the price uptick.
“A modest price recovery is underway, driven by the hurricane warnings threatening the U.S. Gulf Coast. However, the broader discussions revolve around future demand and OPEC+ action,” noted PVM analyst John Evans.
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OPEC+, which comprises the Organization of the Petroleum Exporting Countries (OPEC) and allies such as Russia, has decided to postpone a planned output increase of 180,000 barrels per day for October by two months in response to plummeting crude prices.
In addition, the announcement of an impending interest rate cut by the Federal Reserve sparked optimism about a softer economic landing in the U.S., supporting crude prices. Despite these developments, Morgan Stanley revised its fourth quarter price forecast for Brent to $75 a barrel from $80, projecting that prices are likely to hover around this level unless demand further weakens. Additionally, global commodity traders Gunvor and Trafigura anticipate that oil prices may range between $60 and $70 per barrel due to sluggish demand from China and persistent global oversupply.
The weakening demand in China is attributed to an economic slowdown and a growing shift towards lower-carbon fuels, as noted by speakers at the APPEC energy industry event. Refining margins in Asia have declined to their lowest seasonal levels since 2020.
