Oil edges lower, shrugging off Gulf of Mexico shut-ins
Oil prices slipped slightly on Monday amid concerns about a stalled global economic recovery and with Libya poised to resume production, and failed to get support from an impending storm which has disrupted U.S. output.
Brent crude LCOc1 settled down 22 cents, or 0.6%, at $39.61 a barrel while U.S. West Texas Intermediate (WTI) crude futures CLc1 were down 7 cents, or 0.2%, at $37.26 a barrel.
Both contracts ended last week lower, falling for a second week in a row.
“The storm is taking production offline in the Gulf of Mexico, and the market doesn’t care – that shows just how bad the situation is,” said Bob Yawger, director of energy futures for Mizuho in New York.
Hurricane Sally gained in strength in the Gulf of Mexico, west of Florida on Sunday and was poised to become a category 2 hurricane.
The storm forced energy firms to shut 21.4%, or 395,790 barrels per day (bpd), of offshore crude oil production in the northern Gulf of Mexico, the U.S. government said on Monday.
The storm is disrupting oil production for the second time in less than a month after Hurricane Laura swept through the region.
Typically oil prices rise when production is shut down, but with the coronavirus pandemic getting worse, demand concerns are to the fore, while global supplies continue to rise.
The path towards global fuel demand recovery is likely to be rocky, several senior industry executives said.
“(Coronavirus) infection rates are on the rise again, there are localized lockdowns introduced in a growing number of countries hindering regional economic growth and the number of unemployed is failing to fall significantly,” oil broker PVM’s Tamas Varga said.
“This leads to dismal oil demand growth.”
The Organization of the Petroleum Exporting Countries said on Monday that world oil demand would tumble by 9.46 million barrels per day (bpd) this year, a sharper decline than it predicted in a report a month ago.
In Libya, commander Khalifa Haftar committed to ending a months-long blockade of oil facilities, a move that would add more supplies to the market.
“If Libya’s production comes back online soon, we are talking about 1 million barrels per day or more, this will be a significant addition to the global balances. And the market is pricing this in today,” said Bjornar Tonhaugen, head of oil markets at Rystad Energy.
OPEC and its allies, a grouping known as OPEC+, meets on Sept. 17 to discuss compliance with deep cuts in production, although analysts do not expect further reductions to be made.