DTN Oil

WASHINGTON (DTN) -- Extending last week's gains, oil futures nearest delivery on the New York Mercantile Exchange and Brent crude on the Intercontinental Exchange advanced in early trading Monday as market participants monitor an intensifying storm system in the southwestern Gulf of Mexico that is projected to make its landfall tonight near Texas' refining and oil export hub of Corpus Christi, while refiners and oil producers in the region continue to struggle with an uneven infrastructure recovery following a category four Hurricane Ida in late August.

Near 7:30 a.m. ET, NYMEX October West Texas Intermediate contract topped $70 per barrel (bbl), up $0.68 on the session so far, and Brent crude for November delivery added $0.55 to trade near $73.47 bbl. NYMEX October RBOB futures rallied 1.45 cents to $2.1691 gallon, and front-month ULSD futures advanced 1.3 cents to $2.1590 gallon.

Monday's move higher is underpinned by carryover effects of supply disruption in the Gulf of Mexico for nearly two weeks caused by Hurricane Ida, which made landfall Aug. 29, with over 48% or 883,755 barrels per day (bpd) of offshore oil production in the region still offline, according to the government data from the Bureau of Environmental Enforcement and Protection.

Tropical Storm Nicholas, which strengthened this weekend over the western Gulf of Mexico, is currently forecast to bring heavy rains with a peak wind speed of 50 to 60 knots before it makes landfall in central Texas between Corpus Christi and Galveston near Matagorda Bay, according to DTN Weather. DTN Weather gives a 50% probability of intensifying into a category one hurricane, with a category one storm having wind speeds between 74 to 95 miles per hour.

Corpus Christi is a key U.S. crude export port and home to several oil refineries, including Citgo's 157,500 bpd refinery, Valero's 200,000 bpd refinery and Flint Hills Resources 260,000 bpd refinery.

At the end of last week, Gulf oil producers and logistics companies made gradual progress in bringing back shut-in capacity as power supplies restarted for a number of critical onshore and deep-water infrastructure. The Louisiana Offshore Oil Port said on Thursday that it resumed delivering crude oil to regional refineries.

Limiting the upside for the oil complex is a strengthening U.S. dollar index that rallied to a two and a half week high 92.880 against a basket of foreign currencies in overnight index trade. Greenback's move higher is spurred by several comments from top Federal Reserve officials who voiced their support for an earlier withdrawal of fiscal support for the recovering economy. President of Philadelphia Federal Reserve Patrick Harker said in an interview to Nikkei Asia on Sunday that the Fed's asset purchasing programs can only affect the demand side of the labor market and not the slack on the supply side.

"The supply issues are due to myriad factors, but first and foremost is people, whether they're worried about their children or elder care, or they're fearful to go back into the workplace or to get on mass transit in major cities to get to the workplace.

Monetary accommodation, as delivered through large-scale asset purchases, does it affect supply? No, it affects demand." Harker added.

This sentiment was echoed in earlier comments from President of Cleveland Federal Reserve Bank Loreta J. Mester, who said on Friday the U.S. labor participation rate may never return to its pre-pandemic level despite the remarkable progress the job market has made in the past 18 months. U.S. Department of Labor's August employment report showed that labor participation rate is at its lowest level since the mid-1970s at 61.7% and remained little changed since June 2020. Currently, over 8 million Americans remain unemployed despite U.S. employers having a record-high 10.9 million job openings this summer.

Liubov Georges can be reached at liubov.georges@dtn.com