Key Points:
Oil prices made a sharp recovery as the threat of a hurricane in the U.S. Gulf Coast sparked concerns over potential supply disruptions. West Texas Intermediate (WTI) oil prices (Symbol: USOUSD) rose to $68.39 per barrel, while Brent crude oil prices (Symbol: UKOUSD) increased to $71.77 per barrel.
Picture: Oil prices increase as U.S Gulf Coast braces for hurricane, as observed on the VT Markets app.
The Gulf Coast represents a critical hub, with roughly 60% of U.S. refining capacity located there. Any disruption caused by extreme weather could result in tighter supply, which is a key element in oil trading, and lead to the bounce in prices after last week’s market turmoil when oil experienced significant losses.
Read also about what happened last week when oil prices lay flat on weak demand and OPEC+ supply delays.
Brent dropped 10%, to its lowest since December 2021; while the WTI fell 8%, reaching levels not seen since June 2023. The selloff was driven largely by weaker-than-expected U.S. jobs data, which raised concerns about the state of the economy. Nonfarm payrolls increased by 142,000 in August, missing expectations, and the July figures were downwardly revised to just 89,000, reflecting the smallest monthly job gains since December 2020.
Hurricane forecast and refining capacity
The U.S. National Hurricane Center forecasted a weather system that could potentially turn into a hurricane before making landfall along the northwestern U.S. Gulf Coast. This region plays a pivotal role in U.S. oil production and refining. Any disruption in operations could lead to a supply shortage, driving prices higher. However, it’s important to note that while weather events often cause price spikes, market sentiment remains cautious due to broader demand concerns, particularly from China and the U.S.
Weak demand in China still pressures oil prices
Weak demand from China, driven by its economic slowdown and inventory reductions, continues to cap potential gains in oil prices. Jeff Currie of Carlyle Group emphasised this at the APPEC energy conference, pointing out that weak demand in both China and the U.S., the world’s two largest oil consumers, has dampened the overall outlook. In Asia, refining margins have slumped to their lowest seasonal levels since 2020, reflecting the broader issues in global demand.
Overall outlook for oil
The potential hurricane could cause short-term supply disruptions, which may present buying opportunities if prices spike further. However, traders must remain wary of demand-side pressures, particularly from China. The weak U.S. labour market data could also play a role in influencing market sentiment in the days ahead, particularly as traders await further cues from the Federal Reserve’s interest rate decision.
Official partners:
