By Shariq Khan
Oil prices surged on Friday as output disruptions in the U.S. Gulf of Mexico, caused by Hurricane Francine, led to a rally in the market. Producers were forced to evacuate platforms before the storm hit the coast of Louisiana.
Crude oil futures saw an increase, with Brent rising by 0.5% to $72.31 per barrel and U.S. West Texas Intermediate crude climbing by 0.6% to $69.35 a barrel.
This uptick in prices comes after a week of declines, with Brent dipping below $70 a barrel earlier in the week for the first time since late 2021. Despite this, Brent is on track for a weekly gain of approximately 1.7%, while WTI is set to increase by over 2%.
Oil producers are assessing damages and conducting safety checks in preparation to resume operations in the U.S. Gulf of Mexico. Estimates suggest a potential loss of supply due to Hurricane Francine, with UBS analysts forecasting a 50,000 barrels-per-day (bpd) drop in output for September.
Official data indicates that nearly 42% of the region’s oil output was shut-in as of Thursday, contributing to the supply shock that helped oil prices rebound from earlier lows.
However, concerns about demand persist, as both the Organization of Petroleum Exporting Countries and the International Energy Agency have lowered their demand growth forecasts. Economic struggles in China, the largest oil importer in the world, along with a shift towards lower-carbon fuels, are weighing on oil demand.
Chinese imports have decreased by 3.1% from January to August compared to the same period last year, according to customs data. Analysts are highlighting weaker-than-expected demand in the United States as well, with gasoline and distillate futures trading at multi-year lows.
Data from the U.S. Energy Information Administration shows an increase in oil and fuel stocks last week, indicating a sharp decline in demand in the top petroleum-consuming country.
In conclusion, the impact of Hurricane Francine on oil prices highlights the delicate balance between supply disruptions and demand concerns. While short-term disruptions can lead to price rallies, long-term trends such as shifting consumer preferences and economic struggles in key markets like China and the United States can continue to influence the oil market. It is essential for investors and consumers to stay informed about these factors to make informed decisions about their finances and daily lives.
