Oil prices experienced a notable rise of nearly 2% on Thursday, driven by concerns about the effects of Hurricane Francine on U.S. oil production. However, the gains were limited by a less optimistic outlook for demand. Brent crude futures for November increased by $1.24, reaching $71.85 per barrel, while U.S. crude futures for October rose by $1.26 to $68.57. This followed a more than 2% increase in both contracts during the previous trading session, as Hurricane Francine disrupted offshore oil platforms in the Gulf of Mexico and refinery operations along the southern Louisiana coast.
Analysts from UBS estimate that the hurricane has likely disrupted approximately 1.5 million barrels of U.S. oil production, with a potential reduction in Gulf of Mexico production by about 50,000 barrels per day in September. According to the offshore regulator, by Wednesday, nearly 39% of oil and around half of natural gas production in the Gulf had been halted, with 171 production platforms and three rigs evacuated. The region contributes about 15% of U.S. oil production, and these disruptions are expected to lead to short-term supply constraints.
Despite the initial surge in prices, attention is shifting towards a weaker demand outlook as the storm is predicted to dissipate after landfall. On Thursday, the International Energy Agency (IEA) revised its 2024 oil demand growth forecast down by 70,000 barrels per day to 900,000 barrels per day, largely due to a slowdown in Chinese demand. This downward adjustment contributed to a sharp decline in oil prices earlier in the week.
Meanwhile, market participants are keeping an eye on the upcoming U.S. Federal Reserve policy meeting in mid-September, with hopes for a potential interest rate cut, which could boost economic activity and subsequently increase oil demand. Traders are also awaiting U.S. economic data, expected later in the day, for further insights into market direction.
While Hurricane Francine has temporarily tightened oil supplies, broader market dynamics, including demand projections and economic factors, are likely to play a significant role in shaping the future trajectory of oil prices.
Union Jack Oil plc (LON:UJO) is an oil and gas company with a focus on onshore production, development, exploration and investment opportunities within the United Kingdom and the United States of America hydrocarbon sector.
