Oil prices bounce on Hurricane Francine disruption fears but demand concerns linger

Crude oil futures closed higher on Wednesday, fueled by short-covering as Hurricane Francine caused some U.S. offshore production to be shut in as the storm approaches the Louisiana coast, with the rebound from the previous session’s heavy selling slowed by weekly builds in U.S. crude and product stockpiles.

The U.S. Bureau of Safety and Environmental Enforcement said 39% of crude oil production and 49% of natural gas production in the Gulf of Mexico has been shut as companies evacuated crews out of Francine’s path.

Reuters reported Port Fourchon, Louisiana, home to marine and equipment suppliers to offshore oil producers, was closed to vessel traffic, as was the Louisiana Offshore Oil Port, the only U.S. deepwater port that can handle very large crude carriers for oil imports and exports.

Six eastern Louisiana refineries, mostly around New Orleans, were operating with minimal staff to ride out the storm; Exxon Mobil’s (XOM) Baton Rouge refinery reportedly cut output to as low as 20% of its 522K bbl/day capacity ahead of the hurricane’s landfall.

Oil prices shook off a report from the U.S. Energy Information Agency showing an 833K-barrel increase in crude stocks to 419.1M barrels in the week ended September 6, ~4% below the five-year average for the time of year, and 2.3M-barrel increases in both gasoline and distillate fuels.

“With summer driving season over and refining margins struggling, refiners have scheduled a rather aggressive maintenance season, which has the potential to expand further if refinery economics do not improve soon. That would tend to send unused barrels to storage,” Mizuho’s Robert Yawger said, according to Dow Jones.

Front-month Nymex crude (CL1:COM) settled +2.3% at $67.31/bbl, front-month November Brent (CO1:COM) ended +2% at $70.61/bbl, the second-lowest YTD settlement for both benchmarks, and Nymex October natural gas (NG1:COM) finished +1.7% to $2.270/MMBtu.

ETFs: (NYSEARCA:USO), (BNO), (UCO), (SCO), (USL), (DBO), (DRIP), (GUSH), (USOI), (UNG), (BOIL), (KOLD), (UNL), (FCG)

The Brent benchmark slipped below $70/bbl for the first time since December 2021 on Tuesday in a broad market selloff sparked by fears that sluggish demand and ample supplies will lead to an oversupplied market.

Despite Wednesday’s bounce, the response of crude prices to potential supply disruptions has proven somewhat modest, suggesting that “traders are more concerned that falling demand could lead to oversupply in the market,” Colin Cieszynski, portfolio manager and chief market strategist at SIA Wealth Management, told MarketWatch.

“Technicals suggest the market is entering oversold territory, [but] sentiment is clearly still bearish and Chinese trade data yesterday would have not helped,” ING analysts wrote, as reported by Dow Jones.