Oil Futures Add to Gains on Mexico's Production Outage

Liubov Georges
By  Liubov Georges , DTN Energy Reporter

WASHINGTON (DTN) -- West Texas Intermediate futures on the New York Mercantile Exchange and Brent crude traded on the Intercontinental Exchange extended higher in afternoon trade Tuesday, with both the U.S. and international crude benchmarks gaining as much as 3%. The gains came after a deadly fire that struck an offshore platform operated by Mexico's state-run PEMEX oil company cut the company's production by more than 400,000 barrels per day (bpd). The supply loss was joined by full approval for Pfizer and BioNTech's coronavirus vaccine that spurred optimism it would be followed by increased vaccine mandates, leading to accelerated gains in economic activity and fuel demand.

A fire on a PEMEX-operated offshore oil platform connected to the Ku-Maloob-Zaap oilfield shut-in approximately 441,000 barrels (bbl) of daily crude output. In a document released by the company, it said an extensive fire knocked crude output from more than 719,000 bpd before Sunday's accident to nearly 275,000 bpd through the early hours on Tuesday. The Ku-Maloob-Zaap oilfield cluster is PEMEX's largest operational complex, accounting for more than 40% of its nearly 1.7 million bpd in crude output. The cause of the fire remains unknown, but it has reportedly led to disruption of natural gas supplies into crude fields. PEMEX officials said they hope to resume power and gas supply to the offshore platform and connected wells by Wednesday followed by full restoration of oil output.

Unplanned production outage in Mexico's Ku-Maloob-Zaap oilfield coincides with Federal Drug Administration's full approval for the Pfizer and BioNTech COVID-19 vaccine, with speculation swirling that the agency would soon grant the same measure for Moderna's vaccine.

"The public can be very confident that this vaccine meets the high standards for safety, effectiveness, and manufacturing quality the FDA requires of an approved product," Acting FDA Commissioner Dr. Janet Woodcock said in a statement.

Until now, Pfizer's vaccine was used under Emergency Use Authorization, which was granted by the FDA last December. Analysts believe that the formal approval could lead to a new wave of vaccine mandates from local governments and corporations across the United States, with major companies increasingly requiring their employees to get the shot before they return to the office.

Over the weekend, the seven-day average of coronavirus deaths in the United States surpassed 1,000 for the first time since March when vaccines were not yet widely available to most Americans. The current seven-day moving average of daily new cases was 133,056 as of Aug. 19 -- an increase of 14% compared with the previous seven-day moving average, according to the data from Centers for Disease Control and Prevention.

Separately, U.S. crude oil stockpiles are expected to have fallen by 2.4 million bbl in the week ended Aug. 20, with estimates ranging from declines of 1 million bbl to 4.3 million bbl. Gasoline stockpiles are expected to have declined by 1.4 million bbl from the previous week, and stocks of distillates are expected to be unchanged from the previous week.

DTN Refined Fuel Demand data shows gasoline use in the United States increased just 0.1% during the week ended Aug. 20, while still down 2.5% compared to the same week in 2019. Diesel demand was up 1% relative to the same week in 2019 last week, slowing from a 2% increase compared to 2019 in the prior week.

Supply data to be released Tuesday afternoon by the American Petroleum Institute and Wednesday morning by the Energy Information Administration is likely to show U.S. refinery use likely fell 0.1% to 92.1% of capacity, last week.

On the session, NYMEX October West Texas Intermediate futures surged $1.90 to $67.54 per bbl, and Brent crude for October delivery settled a tad above $71 per bbl after a $2.30 gain. NYMEX September ULSD advanced more than 6 cents to $2.0668 gallon, and September RBOB futures rallied 5.76 cents to a $2.1808-per-gallon settlement.

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

Liubov Georges