Crude oil jumped to one month high on supply concerns as storm activity led to production shutdown in the Gulf of Mexico region. As per US BSEE data, as of September 4, about 92.51 percent or 1.683 million barrels per day of Gulf of Mexico production remained shut.
Reflecting the impact of storm activity, the number of rigs drilling for crude oil fell by 16 rigs last week, the biggest drop since May 2020.
Crude oil rose also as market players reacted positively to OPEC’s decision to raise output gradually. OPEC’s review committee met on September 1 and decided to continue with a production hike of about 400,000 barrels per day in October and shall meet again next month to decide on future policy. The group raised its forecast for global demand this year but expressed concerns about rising virus cases.
Crude oil also rose in reaction to the mixed inventory report. US EIA noted a much bigger than expected decline in US crude oil stocks however weekly crude production jumped to May 2020 highs. EIA also noted a bigger than expected decline in distillate stocks but also an unexpected rise in gasoline stocks.
However, weighing on crude oil prices were demand concerns amid rising virus cases, the slowdown in manufacturing activity globally, the slowdown in the Chinese economy and disappointing US jobs report.
Also weighing on price was easing supply concerns relating to Mexico as Pemex restarted production shut due to fire last month. Also weighing on price are refinery closures in the US due to power outages and flooding caused by storm activity.
Crude oil may witness choppy trade as we need to get more clarity about the demand-supply impact of the storm activity. We however expect to see buying interest at lower levels amid tightness in the US market.
- By, Ravindra Rao, CMT, EPAT, VP-Head Commodity Research, Kotak Securities
First Published: Sept 17, 2021 12:28 PM IST
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