Oil News: Bearish Outlook Expected to Persist after Hurricane Impact Fades

Oil Prices Rise on Hurricane Fears, But Demand Outlook Weighs on Market

Light crude oil futures are clawing back from recent losses, with prices now trending higher for the week. Current trading activity suggests a solid support zone in the $66.66 to $64.45 range. However, resistance is expected between $71.02 and $73.44, with sellers likely to re-emerge as market sentiment remains cautious.

At 10:22 GMT, Light Crude Oil futures are trading $68.56, up $1.25 or +1.86%.

Hurricane Francine Disrupts U.S. Oil Production

Oil prices jumped over 1% on Thursday due to concerns over Hurricane Francine’s impact on U.S. output, especially in the Gulf of Mexico. The hurricane led to the shutdown of offshore platforms and refinery operations in southern Louisiana, disrupting nearly 39% of oil and half of natural gas production in the region. As a significant producer, accounting for 15% of U.S. oil output, any prolonged disruption could tighten short-term supplies. However, with the storm expected to dissipate, traders are shifting focus back to demand concerns.

Demand Weakness Limits Upside Potential

Despite the temporary supply disruption, the broader demand outlook remains a limiting factor for oil prices. U.S. oil inventories rose last week, driven by higher imports and lower exports, according to the Energy Information Administration (EIA). Demand for gasoline in the U.S. fell to its lowest level since May, with similar declines in distillate fuel consumption and refinery utilization. This comes as the market is also grappling with weak demand from China, the world’s largest crude importer, and concerns over global economic growth, particularly in the U.S. and Europe.

OPEC has revised down its global oil demand growth forecasts for both this year and 2025, reflecting a more bearish outlook. This marks the second consecutive downward revision from the cartel, which sees demand growth slowing to 1.74 million barrels per day (bpd) by 2025. In contrast, the EIA expects global demand to set a new record in 2024, though output growth may fall short of previous projections.

Saudi Crude Shipments to China Surge

Adding to the mix, Saudi Arabia’s crude oil shipments to China are set to rise to 46 million barrels in October, up from 43 million barrels in September, according to trade sources. This increase follows Saudi Aramco’s decision to slash its official selling price for Arab Light crude to Asia, marking the lowest price in almost three years. This move is intended to spur demand from key Asian refiners such as Sinopec and PetroChina.

Despite this uptick, Saudi exports to China have been down overall in 2023, with volumes falling 10.3% in the first seven months of the year compared to the same period in 2022. Nonetheless, Chinese refiners are ramping up imports as crude prices fall, and refining margins improve.

Market Forecast: Bearish Outlook Prevails

While short-term supply concerns due to Hurricane Francine provide some upside for oil prices, the medium-term outlook remains bearish. Weak global demand, particularly from China and the U.S., is likely to cap any sustained rally. Traders should watch for price resistance between $71.02 and $73.44, with a potential return of sellers at these levels. Demand worries and OPEC’s downward revisions suggest that the market may struggle to break through these resistance levels, keeping the overall outlook bearish for the coming weeks.