Despite Storm Surge for Oil Prices, Markets Remain Bearish

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Written by Daniel Graeber for Industrial Info Resources (Sugar Land, Texas)--Concerns about the impact of Hurricane Francine and a decline in U.S. crude oil inventories helped push oil prices higher in the Wednesday session, though markets remain well below year-ago levels.

Crude oil prices have been suppressed for much of the year, with geopolitical risk emanating from various conflicts in the Middle East taking a backseat to global economic concerns. The price for Brent crude oil, however, was rallying on Wednesday on reports of a decline in weekly crude oil inventories in the U.S. economy, the world's largest, and the impact from Hurricane Francine.

Data from the American Petroleum Institute suggested U.S. oil inventories declined by 2.79 million barrels during the seven-day period ending September 6, pointing to something of a supply-side strain. Federal data, meanwhile, show operators in the Gulf of Mexico had shut-in about 412,000 barrels of oil production per day, around 24% of the total, due to the threat from Hurricane Francine.

The price for Brent crude oil, the global benchmark, staged a recovery on Wednesday after shedding nearly 4% in the previous session. But even modest gains weren't enough to push Brent much above the low $70 range.

Trading at around $69.70 about an hour into the Wednesday session, Brent is trading at its lowest point since late 2021. Market players such as Trafigura are suggesting Brent could move into the $60 range.

Ole Hanson, the head of commodity strategy at Saxo Bank in Denmark, said in a Wednesday report that recent market trends are consistent with a broad-based economic downturn. Tamas Varga, an analyst at London oil broker PVM, added that headwinds in China and supplies from producers outside the Organization of the Petroleum Exporting Countries are contributing to the bearish sentiment.

"Growing fears of recession have also contributed to the darker mood," he added in a regular daily report from Wednesday.

The Energy Information Administration (EIA), the data arm of the Energy Department, reported Wednesday that crude oil inventories were still 4% below the five-year average, while the total amount of refined petroleum products sent to the market, a proxy for demand, was 2.2% below the same period last year, even though retail gasoline prices are suppressed.

At $3.25 for a gallon of regular unleaded at the national level, commuters are paying about 15% less at the pump than they were this time last year. Prices in general are on the decline for U.S. consumers some two years after inflation topped 9% on an annual basis.

Federal data from Wednesday showed the Consumer Price Index (CPI) increased by 0.2%, while the core rate, which strips out volatile food and energy prices, climbed 0.3% in August. Core inflation is a preferred metric by the U.S. Federal Reserve, which decides on lending rates next week.

Confirming the downturn in energy, meanwhile, the Commerce Department showed the "energy commodities" component of CPI was down 10.1% on an annual basis to August. The EIA, however, still expects supply-side crunch lingering and Brent to climb back into the $80 range during the fourth quarter.

Industrial Info Resources (IIR) is the leading provider of industrial market intelligence. Since 1983, IIR has provided comprehensive research, news and analysis on the industrial process, manufacturing and energy related industries. IIR's Global Market Intelligence (GMI) helps companies identify and pursue trends across multiple markets with access to real, qualified and validated plant and project opportunities. Across the world, IIR is tracking over 200,000 current and future projects worth $17.8 Trillion (USD).