Crude prices have rebounded more than 4 per cent in two days after Hurricane Sally disrupted production in the Gulf of Mexico and data showed US stockpiles were shrinking.
Brent crude, the international oil benchmark, rose more than 2 per cent on Wednesday to $41.43 a barrel, after a similar increase on Tuesday. West Texas Intermediate, the US marker, added 2.4 per cent to $39.21.
That allowed the market to regain some of the ground lost since the start of September — when Brent was trading at $45 — after traders grew anxious about the impact on oil demand of the latest measures to curb the spread of coronavirus, and the rising number of cases.
In recent days, such concerns have been overshadowed by disruptions to supply, as more than a quarter of US offshore output was shut temporarily due to Hurricane Sally. Operators have had to remove their personnel just weeks after redeploying them following Hurricanes Laura and Marco. Royal Dutch Shell, BP, Chevron and Equinor were among the companies that have closed facilities.
About 27 per cent — or 497,072 barrels a day — of offshore crude oil production from the northern Gulf of Mexico was shut by Tuesday, the Bureau of Safety and Environmental Enforcement said. In addition, 28 per cent of natural gas output from the area was put on hold.
Sally is a less severe hurricane than the previous two and is unlikely to cause any permanent damage to infrastructure, said analysts at Norway-based consultancy Rystad Energy.
“We only expect this situation to last for a couple of days before redeployment and restart begins,” the analysts said. Rystad estimates a total shortfall of between 3m and 6m barrels of oil over roughly 11 days.
The outages coincided with new data from the American Petroleum Institute industry group on Tuesday that said crude inventories had fallen by 9.5m barrels per day. Analysts had expected an increase in stocks.
Officials from producer nations of the Opec+ group, which includes Russia, are due to meet virtually on Thursday to review oil policy and the global deal that has been in place since May to bolster the market by cutting production.
The countries agreed to reduce supply by a record 9.7m barrels a day in that US-backed accord. The cuts have since eased to 7.7m b/d as part of a gradual reduction.
It is unlikely that Riyadh — the de facto leader of Opec — will recommend deeper output curbs despite the slide in crude prices this month, according to several people briefed on the kingdom’s thinking.
But countries such as the UAE, which have produced well above their allocated quotas, are anticipated to come under renewed pressure for their lack of compliance.
The deal helped Brent crude prices recover after dropping below $20 a barrel in April, from $70 a barrel earlier this year, as the coronavirus emergency shook the global economy.