Crude oil rose for the second consecutive day of trading by roughly 2% as hurricane Sally closed US offshore oil and gas production.
More than 25% of operations closed. This occured to give way to the passing of the storm to the US Gulf Coast. The total outage’s estimated figure is between 3 million to 6 million barrels in approximately 11 days.
Brent crude gained 77 cents to $41.30 per barrel, translating to a 1.9% gain. Similarly, US benchmark West Texas Intermediate recorded a sharper hike by 2.2% or 85 cents, trading at $39.13 at early trading hours.
The storm-induced shutdowns are likely to result in slashed stockpiles, although refineries are also closed, thereby cutting demand.
Supporting the bullish trend, the American Petroleum Institute reports that crude oil inventories fell by 9.5 million barrels. This is a significant shift from analyst prediction increased stockpiles.
Last week, API reported an unexpected buildup of 3 million barrels per day. This was to the dismay of investors expecting a draw. Especially, since industry experts forecasted a draw amounting to 1.4 million barrels per day.
A week before that, the association records 6.4 million draws from a predicted figure of 1.89 million barrels per day.
For the record, the oil price has significantly dropped for the week. It hit below the $40 floor, primarily driven by rising coronavirus cases worldwide, a dampening outlook for more robust demand.
The Organization of the Petroleum Exporting Countries known as OPEC+ and International Energy Agency have all slashed their demand prospects for the week.
OPEC+ members plan to convene the review of the supply pact tomorrow. Experts anticipate that the organization would unlikely decide to put further production cuts. Even when crude oil stock continues to outnumber orders.
Will Oil Stockpiles Shrink Soon?
One of the world’s biggest independent oil trader Vitol, assured that crude oil stockpiles would keep shrinking towards the end of the year.
The Dutch commodity group said that demand would likely stagnate and retain its volatility within a few months. Notably, before returning to growth on a gradual recovery next year.
The firm’s chief executive warned that recovery would be a bumpy but steady improvement is attainable.
He added that current circumstances would worsen before it gets better, and the next two to three months will be a tipping point for most oil business frontrunners.
The oil industry’s key supporter will be Asian markets that will take global consumption to new highs between 2022 to 2024. Europe and US markets have a less bullish outlook in the next few years.
Global inventory buildup at the early onset of the virus peaked at 1.2 billion barrels per day. After production cut measures and easing mobility restrictions, stockpiles continued to relax, even recording successive draws from July to August.
Currently, the average inventories is significantly drawn down to only 300 million barrels per day. Analysts predict an optimistic outlook, anticipating the figure to drop to 250 million in the last four months of the year.