Oil Futures Soften as Markets Assess Ida's Demand Impacts

Liubov Georges
By  Liubov Georges , DTN Energy Reporter

WASHINGTON (DTN) -- Oil futures nearest delivery on the New York Mercantile Exchange and Brent crude on the Intercontinental Exchange settled the last trading session of August lower, with all contracts posting the largest monthly losses since October 2020 as traders assess the magnitude of lost crude demand from shuttered refineries in Louisiana following Sunday's landfall by Hurricane Ida against prospects of additional supplies from the Organization of the Petroleum Exporting Countries and Russia-led partners, with the 23-nation coalition expected to agree on a 400,000 barrels per day (bpd) output increase beginning Sept. 1.

Ida's devastating impact on the refining complex along the southeastern Louisiana coast continued to make headlines Tuesday, with DTN estimates indicating roughly 2.2 million bpd or 8% of the nation's refining capacity remains offline. Heavy flooding and severe power outages in the region will likely delay refiners' attempts to bring capacity online in at least two weeks, according to analysts. Tuesday's reports suggest some refiners west of New Orleans regained power, while smaller facilities east of the battered city remain in the dark. More than one million homes and businesses in Louisiana and Mississippi -- including all of New Orleans -- were left without power since Ida knocked off critical transmission lines feeding the city.

Colonial Pipeline said it had resumed operations on lines 1 and 2 overnight after the operator shutdown the system on Sunday following Hurricane Ida's landfall. Colonial moves more than 100 million gallons of fuel a day on its 5,500-mile pipeline network from the Gulf Coast to Linden, New Jersey. The prospect of weaker crude demand from eastern U.S. Gulf Coast refineries has begun to weigh on the oil prices, exacerbated by the end of the summer driving season with the upcoming Labor Day weekend.

Further weighing on prices, OPEC+ is expected to bring an additional 400,000 bpd of oil to the global oil market when the group meets Wednesday. The OPEC+ Joint Technical Committee said Tuesday morning the global oil market would remain in a 900,000 bpd deficit this year but reach a surplus of 2.5 million bpd in 2022 as the group gradually raises production. OPEC+ agreed on July 28 to boost collective supplies by 400,000 bpd each month through December 2022, although the group will hold monthly meetings to make adjustments if agreed to unanimously.

The JTC, expects global oil demand to grow by 5.95 million bpd this year, in line with its previous forecast, and by 3.28 million bpd next year.

Separately, private survey showed oil production from the 13-member cartel increased by 210,000 bpd this month to 26.36 million bpd -- the highest since April 2020. Production gains were driven by Saudi Arabia and Iraq, while output in Nigeria, Libya and Iran posted monthly declines.

Tuesday afternoon, traders also positioned ahead of the weekly rundown of U.S. inventory data from the American Petroleum Institute scheduled for a 4:30 p.m. EDT release, followed by official data from U.S. Energy Information on Wednesday.

Commercial crude oil inventories are estimated to have fallen by 2.8 million barrels (bbl) in the week ended Aug. 27, with expectations ranging from declines of 1.1 million bbl to 5.6 million bbl. Gasoline stockpiles are expected to fall by 1.5 million bbl from the previous week and stocks of distillates are seen unchanged from the previous week.

DTN Refined Fuels Demand data showed gains in diesel demand far outpaced those for gasoline in the reviewed week, with distillate use surging nationally by 2.6% compared with a 0.4% increase for motor fuel. Diesel demand was up 3.6% relative to the same week in 2019 last week, strengthening compared to seasonal norms after being up just 1% compared to 2019 levels in the prior week.

On the session, the U.S. dollar weakened fractionally against a basket of foreign currencies to settle at 92.635, lending limited support for front-month West Texas Intermediate futures.

NYMEX October WTI futures declined $0.71 to $68.50 bbl. ICE October Brent expired $0.42 lower at $72.99 bbl, with the November contract settling the session with a $1.36 discount against the now-expired contact. NYMEX September RBOB futures expired at $2.2826 gallon, down 3.01 cents on the session, and October futures settled at $2.1419 gallon. September ULSD futures declined 0.93 cents for a $2.1310 expiration, with the October contact sharply narrowing its discount to eight points.

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

Liubov Georges