Oil News: Hurricane Francine Lifts Crude Futures, But Weak Demand Clouds Outlook

Crude Oil Futures Surge Amid Hurricane Francine’s Impact on U.S. Production

Light crude oil futures continued to rally on Friday, driven by supply disruptions caused by Hurricane Francine. The market, which found a new support zone between $66.66 and $64.45, now faces a key resistance area at $71.02 to $73.44. This level, previously a solid support, is now being tested by traders as a potential resistance barrier. After bottoming out at $65.27 earlier in the week, crude prices are on track to end a four-week losing streak, with short-sellers covering positions.

At 10:49 GMT, Light Crude Oil futures are trading $69.77, up $0.80 or +1.16%.

Hurricane Francine’s Short-Term Supply Disruptions

Hurricane Francine has temporarily reduced output in the U.S. Gulf of Mexico, forcing the evacuation of platforms and halting approximately 42% of the region’s oil production as of Thursday. UBS analysts estimate that September production could decline by 50,000 barrels per day (bpd), while FGE analysts expect a larger reduction of 60,000 bpd, bringing the region’s output to around 1.69 million bpd. This disruption has tightened the market, supporting the recent price rebound, with West Texas Intermediate (WTI) gaining 2.5% for the week and Brent crude rising 1.9%.

Despite these gains, the overall demand outlook remains a concern. The U.S. Energy Information Administration (EIA) reported rising oil stockpiles due to increased imports and reduced exports, further clouding the demand outlook. Additionally, Brent crude briefly fell below $70 on Tuesday, marking its lowest level since late 2021, after OPEC+ revised its demand growth forecasts for 2024 and 2025.

Demand Concerns Continue to Weigh on Market Sentiment

Long-term demand remains a key concern, with OPEC revising its 2024 global oil demand growth forecast down to 2.03 million bpd, a reduction from its earlier estimate of 2.11 million bpd. The outlook for 2025 was also downgraded, reflecting growing fears of a slowing global economy, particularly in China. Chinese import data for August showed weaker-than-expected demand, further contributing to bearish sentiment in the market. As China struggles to stimulate its domestic economy, diesel demand has remained subdued, impacting Asian refinery margins.

In contrast, the EIA revised its global oil demand forecast for 2023 upwards to 103.1 million bpd, citing stronger-than-expected consumption. However, this has done little to offset concerns about the broader economic slowdown, especially in advanced economies where oil demand growth has stagnated.

Weaker U.S. Dollar and Short-Covering Support Prices

A weaker U.S. dollar has also helped support crude oil prices. The dollar index (DXY) dropped to a one-week low, making oil more affordable for foreign buyers. Additionally, short-covering by traders has contributed to the recent price recovery, particularly after the sharp sell-off earlier in the week.

Market Forecast: Bullish in the Short Term

In the short term, crude oil prices are likely to remain bullish due to the ongoing supply disruptions caused by Hurricane Francine and short-covering activities. However, the market faces significant headwinds in the form of weakened global demand, especially from China and other advanced economies. The key resistance level between $71.02 and $73.44 will be critical for traders to watch. If this level is breached, prices could see further gains. However, without stronger demand signals, these gains may be short-lived, and the market could revert to its previous bearish trend.