Oil Surges With Hurricane Delta Paralyzing U.S. Gulf Output
(Bloomberg) - Oil rose to its highest level in more than a month when the Hurricane Delta forced operators to halt nearly 92% of crude oil production in the Gulf of Mexico.
New York futures rose 3.1% as producers in the Gulf of Mexico produced 1.7 million barrels a day before Delta, which is expected to hit the already battered Louisiana coast as a Category 2 hurricane on Friday. The prices won by an oil workers' strike in Norway threaten almost a quarter of its production. In the meantime, some OPEC + members may reconsider plans to increase production over the next few months.
"The storm really has grown into a bigger business than originally thought," said John Kilduff, partner at Again Capital LLC. "It will cut production volumes and will return to the same range."
Oil remains pegged in a narrow trading range near $ 40 a barrel as fiscal stimulus talks in Washington have not taken concrete action at a time when declining demand is limiting price gains. House spokeswoman Nancy Pelosi said there could be no action against a standalone bill to help airlines or other industries without reaching an agreement on a more comprehensive package.
In the meantime, governments around the world are responding to the evolving virus situation. France is expanding restrictions and New York City is closing another 61 public schools as the wider state sees the most new cases since mid-May.
"If Nancy Pelosi sticks to a comprehensive package while President Trump only approves targeted measures, the chances of reaching an agreement on a fourth round of fiscal stimulus will be greatly reduced," said Harry Tchilinguirian, head of raw materials strategy at BNP Paribas SA. That "is negative for market sentiment."
Meanwhile, the oil market is signaling to the Organization of Petroleum Exporting Countries and its allies that it no longer needs crude oil as the group stands ready to return even more supply. If there is too much oil, some traders believe that OPEC could choose to delay the increase in production or spread it over several months.
Traders are also looking for clues about Mexico's secret annual oil hedge. Many suspect that sharp falls in prices late last week were linked to the deal, though there wasn't the usual surge in oil options volatility.
Driving activity in the US is so subdued that refineries have been producing fuel at the slowest pace since the 2008 financial crisis. Elsewhere, there are signs that drivers in Western Europe are retreating from the streets again as governments roll out a new tranche of measures to combat the spread of Covid-19. The combined refining margin for gasoline and diesel was below $ 10 a barrel, its lowest seasonal level since 2010.
"Overall, we are operating at very low levels of demand with massive refining capacity and huge excess inventory wherever you want to look," said Jan Stuart, global energy economist at Cornerstone Macro, in a Bloomberg television interview. "This is just not a good level for oil prices to rebound to workable levels."
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