Oil Futures Fall Ahead of OPEC+ JMMC Meeting as Ida Passes

Liubov Georges
By  Liubov Georges , DTN Energy Reporter

WASHINGTON (DTN) -- In early trade for the last session of August, oil futures nearest delivery on the New York Mercantile Exchange and Brent crude traded the Intercontinental Exchange reversed lower, sending the September RBOB contact 1.5% lower from a four-week high that was triggered by heavy flooding and severe power outages along southeastern Louisiana following Sunday's landfall by Hurricane Ida that shut refineries in Louisiana, with approximately 8% of national refining capacity remaining offline as of Tuesday morning.

Early reports indicate that some refineries west of New Orleans regained power supplies and Colonial Pipeline was expected to have resumed operations on lines 1 and 2 overnight after the operator shutdown the system following Hurricane Ida's landfall. Colonial moves more than 100 million gallons of fuel a day on its 5,500-mile pipe network from the Gulf Coast to Linden, New Jersey.

Still, much of southeastern Louisiana is currently without power, and regional electricity supplier Entergy warned outages could last weeks in areas hardest hit by the storm. Power will remain a primary concern for the refining sector.

DTN estimates that approximately 2.2 million barrels per day (bpd) of Louisiana refinery capacity was shut ahead of Ida's landfall or following the storm. Refineries east of New Orleans, including Valero's 340,000 bpd facility near St. Charles and Shell's 230,000 bpd complex in Norco are believed to have power, equating to about 26% of the region's refining capacity. The status of region's largest refineries, Marathon's 578,000 bpd complex in Graysville and ExxonMobil's 520,000 bpd facility in Baton Rouge, remains unknown, with ExxonMobil on Monday, indicating it was shutting all units to stabilize operations after running at reduced capacity.

Offshore operator data collected by U.S. Bureau of Safety and Environmental Enforcement showed 94.6% or 1,721,809 bpd of Gulf of Mexico oil production remain shut Tuesday morning, just slightly lower than 95.65% a day ago.

Aside from recovery efforts along the central U.S. Gulf Coast, traders are also monitoring the two-day meeting among OPEC+ ministers that begins today, with expectations for the alliance to hold to previously agreed to 400,000 bpd output increase in September. Kuwaiti oil minister Mohammad Abdulatif al-Fares on Sunday told reporters that he supports planned easing of cuts but called for caution in light of recent uptrend in COVID-19 infections.

Adding to demand concerns, European Union on Monday reinstated travel restrictions on unvaccinated U.S. travelers after lifting restrictions as recently as June. Now that restrictions are renewed, Americans traveling to the bloc's 27 member nations might be subject to measures such as COVID testing, quarantine upon arrival and a halt to all nonessential travel.

On the economic front, France and Italy reported better-than-expected second quarter gross domestic production readings Tuesday morning, with economic growth reaching 1.1% and 2.7%, respectively. Both countries reported negative growth in the first three months of the year.

U.S. dollar weakened 0.23% against a basket of foreign currencies to trade near 92.435, lending limited support for the front-month West Texas Intermediate futures.

Near 7:30 a.m. ET, NYMEX October West Texas Intermediate futures declined $0.58 to near $68.64 per barrel (bbl), while ICE October Brent traded $0.49 lower at $72.92 bbl ahead of the contract's expiration Tuesday afternoon. Next-month delivery November futures is trading at a $1.20 discount to the expiring contact. NYMEX September RBOB futures dropped 2.67 cents to near $2.2860 gallon after nearing July's $2.3695 high in the previous session, with the October contract narrowing its discount to 15.39 cents per gallon against the expiring contact. September ULSD futures declined to $2.1218 gallon, down 1.85 cents on the session, with the next-month delivery October contact trading at a 50-cent discount.

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

Liubov Georges