Hurricane Ida, rising gasoline prices, OPEC policy, and the ongoing drought in the U.S. are all factors that could bring investors' attention back to the oil and energy commodities market.
WTI crude oil futures seem to have given back the gains made after the market opened, with the price of a barrel falling in the area of $68.3. However, it is worth recalling that last week black gold quotes jumped more than 10 percent, which was the biggest weekly gain since June 2020. Investors weighed supply disruptions caused by Hurricane Ida against the likelihood that OPEC and its allies would move to increase output. Energy companies in the Gulf of Mexico began shutting down production because of the hurricane, suspending output of 1.74 million barrels of oil a day, according to the Bureau of Safety and Environmental Enforcement. Meanwhile, OPEC+ is scheduled to meet on Wednesday. Kuwait's oil minister said Sunday that an increase in oil production agreed to by the cartel last month may be reconsidered at the meeting. He was referring to a possible production increase of 400,000 barrels a day.
U.S. gasoline futures jumped above $2.3 a gallon, approaching levels not seen since October 2014 due to supply constraints and declining inventories. Hurricane Ida made landfall near Port Fourchon, Louisiana, the offshore hub of the Gulf of Mexico energy industry, disrupting processing plants. Also, official Energy Information Administration data showed U.S. gasoline inventories fell by 2.242 million barrels last week, far more than forecasts of a 1.557 million decline. Gasoline prices had already been rising on renewed prospects of improving demand. This, in turn, means that inflation may still remain high in the U.S. and Americans' disposable income is declining.
Also, interesting developments seem to be taking place in the US natural gas market. Earlier in the week, futures rose above $4.4 per million British thermal units for the first time since December 2018 on the back of the threat of Hurricane Ida, stronger demand and as the Energy Information Administration reported significantly lower inventories last week. EIA reported that companies added just 29 billion cubic feet of gas to storage in the week ended Aug. 20, well below market forecasts of a 40-foot gain. Demand is likely to remain strong as the drought is expected to continue through early September. Meanwhile, natural gas prices in Europe have risen to more than $15 per mmBtu as Europe faces a crude shortage. Russia, Europe's largest gas supplier, has refused to book large additional flows through pipelines in Ukraine ahead of the completion of the controversial Nord Stream 2 pipeline to Germany.
Daniel Kostecki, Chief Analyst Conotoxia Ltd.
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