Hurricane Francine Spurs Supply Disruptions
Crude oil prices were highly volatile last week, driven primarily by disruptions in U.S. oil output caused by Hurricane Francine. The storm led to the evacuation of offshore platforms, temporarily halting 42% of oil production in the Gulf of Mexico. As the Gulf region accounts for about 15% of U.S. oil production, the supply losses helped push prices higher mid-week. While production resumed by the week’s end, the short-term disruption gave crude prices a lift after earlier losses.
Last week, light crude oil futures settled at $68.65, up $0.98 or +1.45%.
U.S. Inventory Draws Offer Additional Support
In addition to the storm-related supply issues, a sharp decline in U.S. crude inventories provided further support for prices. Crude stockpiles fell by 2.79 million barrels, surpassing expectations and signaling tightening supplies in the U.S. Gasoline and distillate inventories also showed declines, reinforcing concerns about reduced availability. These draws, combined with the hurricane impact, helped crude prices recover from multi-month lows.
Rising U.S. Rig Count Adds Pressure
However, crude prices faced downward pressure due to the biggest weekly rise in U.S. oil and natural gas rigs in a year. According to data from Baker Hughes, the U.S. rig count increased by eight rigs, with crude oil rigs rising by five. This marked a return to mid-June levels and introduced concerns about potential oversupply as U.S. shale producers ramped up activity. The rig count increase countered some of the bullish sentiment from the inventory draw and hurricane disruptions.
OPEC’s Demand Downgrade and China’s Weak Consumption
The market’s rebound was tempered by bearish global demand projections. OPEC revised its global oil demand growth forecast lower for 2024, citing ongoing economic struggles in China, the world’s largest oil importer. Chinese crude imports have remained subdued throughout 2023, and recent data continues to reflect weakness in the country’s oil demand. These revisions dampened market optimism, even as traders eyed supply disruptions.
Market Forecast: Bullish Short-Term Rebound Possible, but Risks Loom
Despite bearish factors, crude oil prices may see a short-term rally due to last week’s closing price reversal bottom. This technical signal, if confirmed, could lead to a 2 to 3-week short-covering rally, potentially driving prices higher. Key resistance levels between $71.02 and $73.44 may be tested as traders unwind short positions.
However, the potential rally faces significant risks. Rising U.S. rig counts, OPEC’s downward demand revision, and persistently weak demand from China could limit price gains. While supply disruptions may support prices in the near term, a sustained rally is unlikely without stronger global demand.
