Crude oil prices this week will swing on the lingering impact of Hurricane Ida and demand expectations from global market forecasts, analysts said.
West Texas Intermediate, the U.S. benchmark for the price of oil, increased 1.4 percent during the week ending Sept. 10 on the back of the ongoing impact of Hurricane Ida,. Crude closing Friday at $69.72 per barrel.
As of Saturday, the Bureau of Safety and Environmental Enforcement, which regulates the offshore oil industry, reported that about 60 percent of crude and natural gas production from the Gulf of Mexico remains offline roughly two weeks after Ida made landfall.
The U.S. government added late last week that overflight imagery showed “extensive damage” to energy-related infrastructure along the Gulf Coast, suggesting the impact from the storm could last longer than initially expected. That is likely to drain petroleum inventories as production lags.
Ida rivals Hurricane Katrina in 2005 in terms of the impact on the energy sector.
“Ida is likely to produce more of the same this week, with inventory draws across crude and oil products,” said Giovanni Staunovo, a commodities analyst at Swiss investment bank UBS.
In other developments, the Organization of the Petroleum Exporting Countries, along with the Paris-based International Energy Agency, both release their monthly market reports for September this week.
The U.S. Energy Information Administration last week cut its global demand forecast by 500,000 barrels per day for the third quarter due to the spread of the Delta variant of the novel coronavirus that causes COVID-19. EIA said it expected crude oil prices to decline by about 7 percent next year from fourth quarter levels.
Analysts are waiting to see if OPEC and the IEA agree.
“Though OPEC isn’t the only game in town this week, oil prices will likely move on the group’s expected bearish adjustments to its demand forecast,” said Al Salazar, the managing director at Enverus.
OPEC in its August report left its demand growth expectations unchanged at about 6 million barrels per day. That forecast came despite an upward revision to its economic growth forecast. OPEC’s market forecast for September is out Monday.
Demand forecasts could influence decision-making with OPEC+, a group of OPEC and its allies tasked with adjusting production levels based on economic activity. That group has gradually increased production as economies improve. If OPEC’s September report projects weaker demand, it still could support crude oil prices, said Phil Flynn, an energy analyst at The PRICE Futures Group in Chicago.
“It’s bullish because it’s a sign that OPEC is less likely to be more aggressive with production increases,” he said.
Ed Longanecker, the president of the Texas Independent Producers and Royalty Owners Association, agreed, saying tight supplies will support higher prices.
“We could actually see lower supply in 2021/22, with demand poised to surge over the next 6-12 months, driving commodity prices higher,” he said. “The Delta variant will temporarily slow demand recovery, but will not derail the train.”
On Wednesday, the EIA releases its usual data on inventory levels of crude oil and refined products, which will likely show more declines because of Ida. Economic reports on unemployment claims and consumer sentiment released at the end of the week will cap off what be a volatile week in crude oil prices.