US West Texas Intermediate and international benchmark Brent crude oil futures ended sharply last week with a rally driven by concerns over supply disruptions. The catalyst that raised prices was a strike in Norway and production involving Hurricane Delta was discontinued.
However, this week does not rely on similar factors raising prices. First, the strike in Norway is over. Second, the storm has crossed platforms and progress is already being made to get them back on the line and the third, the coronavirus epidemic, is showing no signs of abating, keeping pressure on demand.
Strike ends after week-long price surge
Oil prices slipped more than 1% on Friday after an oil worker strike in Norway ended, which should boost crude oil production. The strike will cut crude oil production in Norway.
Norwegian oil firms on Friday struck a wage deal with labor officials, ending a 10-day strike that threatened to cut the country’s oil and gas production by around 25% the following week.
Output produced by Hurricane Delta
The Hurricane Delta delivered the biggest blow to the US offshore Gulf of Mexico energy production in 15 years, halting most of the region’s oil and nearly two-thirds of natural gas production.
American drillers add oil and gas rigs for fourth week in a row: Baker Hughes
US energy companies added oil and natural gas leaks for the fourth consecutive week for the first time since June 2018 this week as manufacturers begin drilling again with prices of about $ 40 per barrel in the last few months.
The oil and gas rig count, an early indicator of future production, jumped from three to 269 in the week to October 9, the energy services firm Baker Hughes Company said in its closely reported report on Friday.
According to Baker Hughes data, the total rig count fell to a low level of 244 rigs during the week ending August 19, the week ending August 14.
This week’s rig count was 587 rigs or 69% below this time last year.
According to Baker Hughes data, US oil leaks rose from four to 193 in early June this week, the highest in early June, while gas leaks rose from one to 73.
Hedge funds cut bullish bets on US crude as demand outlook warns
Hedge Funds and Money Managers Cut sharply on crude, as data showed on Friday, rising coronavirus cases around the world weakened the demand outlook, and a surge in OPEC output last month also affected the market.
The Commodity Futures Trading Commission (CFTC) of the United States said the group of speculators reduced their combined futures and options positions in New York and London from 6,619 contracts to 297,896 on 6 October.
With the strike in Norway, further crude oil traders are going to see developments in the Gulf of Mexico for further directions. In early Sunday, the US Bureau of Security and Environmental Enforcement (BSEE) and 91% offshore crude oil production remain closed in Mexico’s northern-regulated city of the US after Hurricane Delta, which caused a landslide on Friday.
A total of 8.8 million barrels per day (bpd) of crude oil is produced through Sunday.
Traders need to remember that much of last week’s rally was fueled by short-covering ahead of the storm, so it’s hard to tell how much the damage is already valued. The point is, the market does not need to rally. News regarding production is bad. Time is “How long will it take to get up and running again at full capacity?” This is what traders want to know.
Looking ahead, demand is still bearish so profit may be limited. JP Morgan said a deteriorating global oil demand outlook due to a possible increase in cases of coronovirus would prompt OPEC to reverse the planned easing of the oil cut in 2021, with Saudi Arabia offering a lower cut from its current quota.