Oil declines as US Gulf of Mexico output resumes after hurricane

Prices have slightly rebounded after falling below $70 a barrel earlier this week

A power line damaged after Hurricane Francine hit Houma, Louisiana, and swept through US Gulf of Mexico oil and gas production zones. Getty Images

Oil prices fell on Friday after oil and gas operations in the Gulf of Mexico resumed following Hurricane Francine.

Brent, the benchmark for two thirds of the world’s oil, settled at $71.61 a barrel, down 0.5 per cent, while West Texas Intermediate, the gauge that tracks US crude, closed at $68.65 a barrel, down 0.5 per cent.

Francine swept through the key US oil and gas production zones of the Gulf of Mexico and made landfall on the Louisiana coast as a Category 2 hurricane on Wednesday night. About 42 per cent of the current oil production and 53 per cent of the natural gas output in the region has been shut in, the US Bureau of Safety and Environmental Enforcement said in a report on Thursday.

“After the storm has passed, facilities will be inspected,” the regulator said. “Once all standard checks have been completed, production from undamaged facilities will be brought back online immediately. Facilities sustaining damage may take longer to bring back online.”

Gulf of Mexico production makes up around 15 per cent of total US crude oil output, or nearly 2 million barrels of oil per day.

Oil prices have rebounded after falling below $70 a barrel earlier this week, a level not seen in more than two years, amid concerns about demand in the US and China.

On Thursday, the International Energy Agency slashed its 2024 oil demand growth forecast, citing a “rapidly slowing” Chinese economy. Global oil demand growth is now expected to expand by 900,000 bpd this year, 70,000 bpd less than its previous estimate, the IEA said in its monthly oil market report.

The agency also said the oil market could face a surplus next year even if the Opec+ alliance keeps its voluntary oil output cuts in place.

Last week, Opec+ producers extended supply curbs of 2.2 million bpd until the end of November amid concerns of slumping demand. Saudi Arabia, Russia, Iraq, the UAE, Kuwait, Kazakhstan, Algeria and Oman agreed to pause scheduled increases of 180,000 bpd in October and November.

“The market is discounting the impact of such compensation cuts, in our view,” UBS strategists said in a research note on Thursday. “Market participants seem to believe that at lower price levels, compliance is deteriorating, and some countries are producing more than they should.”

However, initial data on oil exports for this month indicates that countries such as Iraq, Kazakhstan and Russia, which were previously producing more oil than their quotas allowed, have reduced their exports in line with their commitments, the Swiss lender said.

“Economic growth concerns, the impact of restrictive central bank policies, and shifts in risk sentiment are driving prices more than fundamentals,” it said.

An indicator of core inflation in the US unexpectedly increased last month, dampening expectations for a large rate cut from the Federal Reserve at its meeting next week. The US consumer price index rose 2.5 per cent in August from a year earlier and 0.2 per cent from the previous month, the Labour Department said on Wednesday.

The Fed has maintained the benchmark borrowing rate at 5.25 per cent to 5.50 per cent since July last year. As of Friday, about 61 per cent of traders anticipated a 25-basis point decrease, while 39 per cent predicted a 50-basis point cut, according to CME Group data.