A number of major events weighed on global oil markets throughout last week.
Those factors included:
- Hurricane Ida;
- the United States Federal Reserve delaying the tapering off of its economic stimulus;
- the decision of the Organization of the Petroleum Exporting Countries and its allies in OPEC+ to stick to their original output increments;
- the rising number of COVID-19 cases in parts of the world;
- a weaker-than-expected U.S. jobs report, indicating lower fuel demand during a resurgent pandemic.
As a result of all of the above, oil prices fell on Friday, Reuters reported.
And these factors are impacting the crude markets from rather conflicting directions.
Hurricane Ida impacted the U.S. energy dynamics considerably. The powerful storm tore through the central Gulf of Mexico, forcing the evacuation of hundreds of production platforms and drilling rigs.
Oil and gas production in the U.S. portion of the Gulf of Mexico remains largely halted in the aftermath of the hurricane. About 1.7 million barrels, or 93 per cent, of daily crude output has been suspended, said the U.S. offshore regulator, the Bureau of Safety and Environmental Enforcement. About 1.99 billion cubic feet per day of natural gas, or 89 per cent of the region’s total output, was also shut down due to the hurricane. The U.S. Gulf of Mexico region accounts for about 17 per cent of the country’s total oil production and five per cent of total U.S. dry natural gas production.
In the meantime, the U.S. Labor Department reported on Friday that amid the continuing struggle with the COVID-19 pandemic, employers added only 235,000 jobs in August, less than a third of the forecasted 733,000. The only consolation was the August unemployment rate improving to 5.2 per cent from July’s 5.4 per cent. This lower-than-anticipated addition to employment meant lower fuel consumption.
But some factors helped buoy the markets. The U.S. Energy Information Administration said that country’s crude oil inventories declined by 7.2 million barrels the week before. This was a larger drop than had been reported by the American Petroleum Institute (API).
The weaker-than-expected U.S. job report is also expected to give the Federal Reserve an excuse not to ease its stimulus activities at least until October. Oil prices should respond positively since the Fed was expected to announce it would begin tapering off the support it’s providing the COVID-restrained economy.
Since the start of the COVID outbreak in March 2020, the Fed has bought $120 billion in bonds and other assets to help support the economy. The central bank has also kept interest rates at virtually zero for the past 18 months.
Another factor is the decision by OPEC+ to stick to its original plan to add 400,000 barrels per day (bpd) to the global market over the next few months. This comes despite the push by U.S. President Joe Biden for more output from OPEC+.
The markets reacted to various factors, with Brent oil crude futures settling lower by 42 cents, or 0.58 per cent, at US$72.61 a barrel, while the U.S. West Texas Intermediate (WTI) crude futures went down 70 cents, or one per cent, at US$69.29.
For the time being, fundamentals don’t appear to be controlling crude oil market patterns. Instead, non-fundamental factors seem to have a greater impact.
But in the longer run, established norms suggest that fundamental market factors will have the final hurrah. Let’s wait and see.
Toronto-based Rashid Husain Syed is a respected energy and political analyst. The Middle East is his area of focus. As well as writing for major local and global newspapers, Rashid is also a regular speaker at major international conferences. He has been asked to provide his perspective on global energy issues by both the Department of Energy in Washington and the International Energy Agency in Paris. For interview requests, click here.
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