Oil Prices Extend Gains on U.S. Supply Concerns

Crude oil prices extended gains made at the start of the week as a significant portion of U.S. production capacity in the Gulf of Mexico remained shut-in, following Hurricane Francine.

An additional driver for oil prices came from traders expecting inventory declines over the week to September 13. The American Petroleum Institute reports inventory estimated later today and the EIA releases its report on Wednesday.

Per a Reuters poll, crude oil inventories could have shed some 200,000 bpd in the reporting period.

Platforms and being reopened but 12% of oil production capacity and 16% of gas production capacity are still shut, Reuters reported earlier today. That’s still down from about 20% of oil capacity and 28% of natural gas capacity as of Sunday.

The disruption caused by Francine on Gulf of Mexico oil and gas production pushed oil prices higher last week and the boost appears to have endured longer than one might expect, especially in light of reports that bearish bets on oil hit an all-time high also last week.

“This historic speculative selling pressure prompted a more than $10/bbl collapse in crude prices between late August and this past Tuesday,” Commodity Context analyst Rory Johnston wrote in a note cited by Reuters.

However, the supply disruption in the U.S. Gulf of Mexico and expectations that the Fed will later this week announce a long-awaited interest rate cut seems to have reversed sentiment, at least temporarily. This pushed Brent crude above $73 per barrel earlier today, with West Texas Intermediate topping $70 per barrel.

“Growing expectations of an aggressive rate cut boosted sentiment across the commodities complex,” ANZ analysts said, as quoted by Reuters.

Crude oil prices have declined by about 14% since the start of the third quarter, mostly because of weaker-than-expected economic data from top importer China.

By Irina Slav for Oilprice.com

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