Oil Returns to Bullish Zone over Tighter US Supply

By Adedapo Adesanya

Oil prices rose on Tuesday, pausing sharp losses from the previous session amid tighter supplies in the United States.

Brent crude futures gained 68 cents or 0.92 per cent to settle at $74.59 per barrel, while the US West Texas Intermediate (WTI) crude futures gained 22 cents or 0.31 per cent to settle at $70.51 a barrel.

The slow return of some of the production in the Gulf of Mexico and the rising energy prices globally supported oil prices on Tuesday, after a drop on Monday driven by a stronger US dollar and a broader market sell-off ahead of the US Fed’s policy meeting this week and amid concerns about China’s economy.

While most of the Gulf of Mexico oil production is now back online after Hurricane Ida, Shell, one of the companies in the region, said its West Delta-143 (WD-143) offshore facilities had sustained significant structural damage from the storm.

About 18 per cent of the US Gulf’s oil and 27 per cent of its natural gas production remained offline, more than three weeks after Hurricane Ida, regulator Bureau of Safety and Environmental Enforcement (BSEE) said.

Support also came as surging natural gas prices in Europe just ahead of the winter heating season raise the potential for switching from gas to oil as higher gas prices should offer some backing to the oil market.

Investors continue to monitor the threat from heavily indebted Evergrande and the impact that it could have on the wider financial market as the regulator warned that its $305 billion of liabilities could spark broader risks to China’s financial system if its debts are not stabilised.

However, the Organization of the Petroleum Exporting Countries and allies (OPEC+) struggled to pump enough oil in August to meet current consumption as the world recovers from the coronavirus pandemic.

Several countries appeared to have produced less than expected as part of the OPEC+ agreement – suggesting a supply gap could grow.

Nigeria, Angola and Kazakhstan have struggled in recent months to raise output due to years of under-investment or large maintenance work that has been delayed by the COVID-19 pandemic.

The market is also likely to be bearish as the US Federal Reserve is expected to start tightening monetary policy – likely to make investors warier of riskier assets such as oil.