DTN Oil

WASHINGTON (DTN) -- Oil futures nearest delivery on the New York Mercantile Exchange and Brent crude traded on the Intercontinental Exchange settled Friday's session higher as now Hurricane Ida tracks toward the Louisiana Coast, shuttering over 58% of offshore Gulf of Mexico oil production. In addition, Federal Reserve Chairman Jerome Powell indicated a gradual tapering of bond and mortgage-backed securities purchases will likely begin in the final months of the year, pressuring the U.S. Dollar Index and spurring risk-on trade across financial markets.

On the session, NYMEX October West Texas Intermediate futures jumped $1.32 to settle at $68.74 barrel (bbl), gaining more than $6 in value this week, and Brent crude for October delivery advanced $1.63 for $72.70 bbl settlement. NYMEX September ULSD gained 2.60 cents or 1.1% to settle at $2.1092 gallon and September RBOB futures rallied 1.2% to $2.2742 gallon.

Friday's higher settlements were spurred by a quickly moving Hurricane Ida that has strengthened in the past 24 hours over the western tip of Cuba and is now tracking towards the central U.S. Gulf Coast. Meteorologists at DTN Weather forecast the system will rapidly intensify over warm waters in the Gulf of Mexico and impact the northern Gulf coast as a Category 3 hurricane late Sunday. In preparation for the storm, major oil producers in the region have begun shutting down offshore drilling platforms and evacuating workers.

The Bureau of Safety and Environmental Enforcement estimates approximately 58.51% of current oil production has been taken offline as Hurricane Ida begins entering the Gulf of Mexico. Based on data from offshore operator reports, personnel have been evacuated from a total of 89 production platforms, 15.89% of the 560 manned platforms in the Gulf of Mexico. Offshore federal Gulf of Mexico crude oil production currently accounts for 16% of total U.S. crude oil production. Roughly 70% of offshore oil and gas production is located west of New Orleans, and nearly all of Gulf of Mexico federal offshore oil and gas production is west of Pensacola.

Aside from the developing hurricane, traders were also monitoring remarks on monetary policy from Powell who indicated during his speech at the annual Jackson Hole symposium that the central bank is prepared to scale back fiscal stimulus, albeit at slower pace. Powell stressed that the beginning of tapering does not signal any plan to start raising the Fed's benchmark short-term rate, which it has kept near zero since the pandemic tore through the economy in March 2020. Rate hikes won't likely start until the Fed had finished tapering its bond purchases. Powell acknowledged the progress made by the labor market, noting that the pace of total hiring is now faster than at any time in recorded data before the pandemic. "With vaccinations rising, schools re-opening and enhanced unemployment benefits ending, the factors that have been holding back employment gains are now are now fading," he added. However, he also noted that a sharp increase in inflation is a major concern for the economy and the Fed closely monitors the incoming data.

Over the 12 months through July, measures of headline and core inflation have run at 4.2% and 3.6% respectively -- well above the Fed's 2% longer-term objective.

The Fed has been buying $120 billion a month in mortgage and Treasury bonds to try to hold down longer-term loan rates to spur borrowing and spending.

Despite a somewhat upbeat outlook, American consumers feel miserable about the economy and prospects for employment and personal finances. U.S. consumer sentiment index released by earlier Friday by the University of Michigan showed a staggering loss of confidence in the economy, with consumers recording the least favorable economic conditions in more than a decade. The losses were especially large in the Expectations Index, down 17.6% from the previous month and 5% lower than a year ago, and widespread across all demographic groups, regions, and the outlook for the economy.

"The August collapse of confidence does not imply an imminent downturn in the economy. There was a similar episode which occurred in September 2005, with comparable declines in the Sentiment Index (13.7% in 2005 vs. 13.4% in 2021). The cause of the steep falloff in 2005 was the devastation from Hurricane Katrina and rising energy prices. The impact of 9/11 was another non-economic event that had an immediate impact on consumers' expectations and emotions," noted Surveys of Consumers Chief Economist Richard Curtin.

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