Oil advanced to the highest in two weeks as Hurricane Delta heads toward the energy-producing Gulf of Mexico region.
Both U.S. benchmark crude futures and gasoline futures climbed over 4% on Tuesday. Hurricane Delta is forecast to become a Category 4 and is expected to move through the U.S. Gulf before hitting Louisiana.
Companies in the region are preparing for the storm and Bristow Group began to remove workers from oil and natural gas platforms.
Meanwhile, House Speaker Nancy Pelosi and Treasury Secretary Steven Mnuchin will resume talks on Tuesday on another round of pandemic relief funding, boosting the prospect for energy demand to also improve. Still, Federal Reserve Chair Jerome Powell warned of a weak U.S. recovery without sufficient government aid.
“Gasoline is higher because of potential for an increase in demand,” and the rally “is driving crude oil with it to a certain degree,” said Bob Yawger, head of the futures division at Mizuho Securities. At the same time, while the storm may end up disrupting refiners that contribute to demand for crude, “the knee-jerk reaction is to the likelihood of rigs and production being shut down in the gulf.”
Crude was swept up in a broader market rally Monday and was aided by a strike in Norway that has shut fields and is curbing flows.
Still, the outlook for global oil demand remains patchy with stricter lockdowns coming into force in parts of Europe.
Germany’s new coronavirus cases jumped the most since mid-April and Italy’s government is set to order stricter rules, including a decree that masks be worn outdoors.
“The rally today is a continuation of yesterday’s bounce-back, which was built on a trifecta of bullish factors,” said Harry Tchilinguirian, head of commodities strategy at BNP Paribas SA. That includes “the rapid recovery of President Trump, the strike in Norway’s oil sector and improved technicals as oil’s price moved back to its 100 day moving average.”
West Texas Intermediate for November delivery rose $1.30 to $40.52 a barrel as of 10:01 a.m. New York time
Brent for December settlement gained $1.22 to $42.51 a barrel
Moves in the oil futures curve were more circumspect on Monday, signaling underlying weakness. The nearest timespread for Brent, which helps gauge the health of the market, gained only 1 cent and later contracts remain more expensive than nearer ones, showing oversupply. There have also been a flurry of options trades that would profit a buyer from lower prices in recent days.
With a storm heading toward the U.S. Gulf attention is once again focusing on American oil balances. The American Petroleum Institute will release its weekly oil inventory update later Tuesday, while U.S. government data will be published Wednesday.