UBS: Francine May Have Disrupted 1.5 Million Barrels of U.S. Crude

Analysts at Wall Street bank UBS estimate that hurricane Francine may have disrupted up to 1.5 million barrels of U.S. crude production in total, according to a Thursday report from CNBC. Oil prices have reversed course over the past two days, with Brent crude for November delivery trading at $71.77/barrel on Thursday's session at 10.30 am ET from Tuesday's two-year low of $69.00/barrel while WTI crude for October was trading at $68.62/barrel from $65.56.

"Hurricane Francine has likely disrupted about 1.5mn barrels of US oil production, which we estimate will reduce September production in the Gulf of Mexico by around 50,000bpd," Giovanni Staunovo, an analyst at UBS, told clients in a Thursday note.

UBS has predicted that oil prices will continue to rise in the near-term as inventories decline and supply lags demand growth.

The Weather Channel expects Hurricane Francine to "continue to weaken as it tracks through the South today, but the system and its eventual remnants will still pack flooding rain and tornado threats into late week."

Commodity analysts at Standard Chartered have argued that positioning in the oil futures markets has turned extreme enough to skew price risks to the upside. Further, they have pointed out that oil markets are set to tighten further in the coming months as some OPEC+ members cut production. 

Back in July, Russia, Iraq and Kazakhstan submitted their compensation plans to the OPEC Secretariat for overproduced crude volumes for the first six months of 2024. According to the analysts, the compensation for overproduction will result in OPEC production clocking in at 530 kb/d lower in Q4-2024; 540 kb/d lower in Q1 and Q2-2025 and 560 kb/d lower in Q3-2025, if all commitments are kept. 

StanChart has argued that the market's current assumption that there will be no compensation reduction is wrong, saying that Saudi Arabia, in particular, is unlikely to accept any further backsliding on promises made by the overproducers. The commodity experts have noted that the recent high-profile visits to Iraq and Kazakhstan by the OPEC Secretary General, Haitham al Ghais suggests that OPEC intends to follow up on the promised cuts.

By Alex Kimani for Oilprice.com

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