Oil recovers 3% from 33-month low after Hurricane Francine instils supply fears; Brent at $71, WTI gains over $2

International crude oil prices slightly recovered from a 33-month low level and climbed three per cent or over $2 a barrel on Wednesday, September 11, driven by fears of lengthy production shutdowns in the offshore oil patch due to Hurricane Francine. The recovery in prices also came after an increase in US crude inventories reported earlier today, while US inflation eased in August.

Brent crude futures were last up $1.87, or 2.70 per cent, to $71.06 a barrel and the US West Texas Intermediate (WTI) crude futures last gained $2.05, or 3.12 per cent, to $67.80. Back home, crude oil futures last traded 2.91 per cent higher at ₹5,694 per barrel on the multi-commodity exchange (MCX).

Also Read: Crude View: D-Street experts peg Brent at $75-80 in near-term, Morgan Stanley cuts forecast by $5 on soft demand

What pushed crude oil prices from a three-year low?

-Crude oil prices shook off an increase in crude inventories reported by the US Energy Information Administration (EIA). The EIA said crude inventories rose by 833,000 to 419.1 million barrels in the week ending September 6, lower than analysts’ expectations.

-Analysts said EIA data show Cushing inventories have drawn nine of the last ten weeks, down to the lowest level since early November last year. Concern about Hurricane Francine disrupting output in the US, the world’s biggest producer, also supported prices.

-Both oil benchmarks tanked on Tuesday, with Brent falling below $70 to its lowest price since December 2021 and US crude dropping to its lowest since May 2023 after the Organisation of Petroleum Exporting Countries (OPEC) revised its 2024 oil demand growth forecast for a second time.

-OPEC said in its monthly report that the world oil demand will rise by 2.03 million barrels per day (bpd) in 2024, down from last month’s forecast for growth of 2.11 million bpd. Until last month, OPEC had kept the forecast unchanged since it was first made in July 2023.

Also Read: Oil crashes to 33-month low after OPEC+ slashes demand forecasts, Brent sinks below $70 for first time since Dec 2021

-Analysts said the market rebounded autonomously, as Tuesday’s drop was substantial, citing fears that Hurricane Francine would disrupt supply. The US Bureau of Safety and Environmental Enforcement said on Tuesday that about 24 per cent of crude production and 26 per cent of natural gas output in the US Gulf of Mexico were offline due to the storm.

-Oil prices have lately dipped on weakening global demand prospects and expectations of oil oversupply with the Libya deal and group output. The bearish rut comes despite the OPEC alliance postponing its original plan to add 180,000 bpd next month as it gradually restarts output that has been halted since 2022 to shore up prices.

-D-Street analysts expect that global crude oil prices will not remain below $70/bbl marl for long. Morgan Stanley cut its Brent crude oil forecasts for coming quarters and said the global oil market is facing a period of demand weakness similar to those seen during recessions.

Also Read: OPEC+ to pause planned October oil output hike of 180,000 bpd for two months after Brent crashes to 14-month low

Where are prices headed?

Analysts said Chinese demand growth was also revised downwards to 650,000 barrels per day, compared to 700,000 barrels per day in the previous report. A tropical storm in the Gulf of Mexico and a decline in US oil stocks could support crude oil prices at lower levels.

‘’We anticipate continued volatility in crude oil prices. Crude oil is expected to find support at $64.90-64.40, with resistance around $66.20-66.80. In INR terms, crude oil has support at ₹5,450-5,400, while resistance is at ₹5,600-5,660,” said Rahul Kalantri, VP Commodities, Mehta Equities Ltd.

Commenting on crude price forecast, Swarnendu Bhushan, Co-head of Institutional Equities, PL Capital- Prabhudas Lilladher said, ‘’While upstream earnings are currently impacted, with the OPEC+ delaying its planned rise in production, we expect oil prices to rebound to $75-80/bbl in the near term.”

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