Inspenet, August 31, 2023.
Uncertainty in the price of oil continues
Amid a global outlook that remains uncertain in terms of oil supply and demand, black gold prices remain on a tightrope, at the mercy of both natural and geopolitical factors. In this case, Hurricane Idalia becomes a major player on the oil scene, as investors closely watch its trajectory and its possible effect on fuel demand.
On Wednesday afternoon, October Brent crude futures were down just 3 cents to settle at $85.46 a barrel as of 12:40 pm EDT (1640 GMT). The October contract is about to expire and the most active November contract is trading at $84.94, just 3 cents lower. On the other hand, US West Texas Intermediate (WTI) crude futures gained 12 cents to settle at $81.28.
Both benchmark indices rose more than a dollar on Tuesday as the US currency weakened on disappointing US jobs releases. This dollar weakness lessens the likelihood of interest rate hikes, boosting investor confidence in oil.
However, at the epicenter of concern is Hurricane Idalia. This natural phenomenon has been in the news as it makes landfall in the United States and moves southeast. Idalia began its incursion as a Category 3 storm, causing concern in oil markets. This storm made landfall in a region of Florida where the northern fringe of the state curves into the Florida panhandle and then continued on its way to southeast Georgia as a Category 1 storm.
The uncertainty lies in whether Hurricane Idalia will stay close to the coast or move out into deeper Atlantic waters. This doubt is stoking concerns about the impact it could have on fuel demand, especially at a time when the summer driving season was expected to reach its peak.
Phil Flynn, an analyst at Price Futures Group, commented: “Right now, on the current trajectory, there are concerns that the storm will skirt the coast of Georgia and South Carolina and that is renewing concerns about demand destruction.” . Instability in supply and demand is one of the most critical factors influencing oil prices.
On the other hand, data from the US Energy Information Administration showed a significant change in the supply of oil in the country. Crude inventories fell by 10.6 million barrels over the past week, reaching a total of 422.9 million barrels. This drop was much steeper than analysts had anticipated in a Reuters poll, where a draw of just 3.3 million barrels was expected. In addition, finished motor gasoline product supplied, which is a key indicator of demand, held at around 9.1 million barrels per day.
However, John Kilduff, a partner at Again Capital, warned that demand for gasoline could fall sharply in the coming weeks, as it historically tends to slow after the summer driving season. This could put additional pressure on oil prices.
In addition to natural factors, geopolitical decisions are also influencing the oil market. Saudi Arabia, the world’s top oil exporter, is expected to extend its voluntary output cut until October, which would keep global oil supplies tight. As a result, Saudi Arabia’s official selling prices for all crude grades sold to Asia in October could hit their highest level of the year.
Lastly, another event that draws the attention of investors is the coup in Gabon. This could have a significant impact on oil supplies, as Gabon exported a monthly average of 160,000 barrels a day to Asia from May to July, according to Kpler ship-tracking data.
Despite these bullish factors, the oil market is also facing concerns about the mixed economy in China, the world’s largest oil importer. Although Saudi Arabia, Russia and other producers have cut output, exporters such as Venezuela and Iran are taking up some of the empty space in the global oil market, maintaining a fragile balance on the global oil landscape. In this context, Ole Hansen, head of commodity strategy at Saxo Bank, noted that “continued demand concerns may prevent prices from making a sustained move above $90.”
In short, oil is in a precarious state of equilibrium, with multiple factors at play that can influence both supply and demand. Hurricane Idalia, production cuts from Saudi Arabia and geopolitical events in Gabon add to uncertainty in the market, while demand concerns, especially in China, remain a major theme for investors. The future of oil remains uncertain, and crude oil prices are teetering on a tightrope amid these challenges.