WTI Tops $70 as Ida Continues to Disrupt the Supply Chain

Liubov Georges
By  Liubov Georges , DTN Energy Reporter

WASHINGTON, D.C. (DTN) -- Nearby delivery month oil futures on the New York Mercantile Exchange and Brent crude on the Intercontinental Exchange edged higher in early trade Friday, with the U.S. crude benchmark above $70 per barrel (bbl) for the first time in over a month as traders evaluate the effect of prolonged supply disruptions in the offshore Gulf of Mexico on the market's near-term supply-demand disposition, with government data reporting over 90% of the reginal oil production still shut-in following Hurricane Ida.

Investors also await the release of the U.S. Department of Labor's nonfarm employment report for August that could determine the path of Federal Reserve monetary policy in the coming weeks. The Federal Reserve is currently buying $120 billion a month in bond and mortgage-backed securities to shore up growth and guarantee the free flow of credit.

Economists expect Friday's payroll report will show U.S. employers added 725,000 new jobs last month -- a modest deceleration from July, but the third straight month of robust gains after the pace of hiring cooled in the winter and spring. The U.S. unemployment rate is seen to have fallen to 5.2% from 5.4% in July. Anything around this level should support the narrative of a recovering labor market. However, a miss on employment figures could spark fears of stagflation, as rising inflation joined with the aggressive spread of the Delta variant of COVID-19 could have kept employment gains in check.

U.S. consumer price prices steadied at a 13-year high in July, while one in five states reported record levels of COVID-19 hospitalizations in August.

In oil markets, traders are keenly monitoring headlines around ongoing supply disruptions in the offshore U.S. Gulf of Mexico, with government data reporting over 90% or 1.7 million barrels per day (bpd) of the regional crude production remains offline following Hurricane Ida. Shell Offshore Inc. said late Thursday it found damage at the company's West Delta-143 offshore facilities in the Gulf of Mexico during a flyover, with the timeline to repair the facility remain uncertain.

"The WD-143 facilities serve as the transfer station for all production from our assets in the Mars corridor in the Mississippi Canyon area of the Gulf of Mexico to onshore crude terminals," said Shell. "All of our other offshore assets remain shut in and remain fully evacuated at this time."

An early assessment by Shell found approximately 80% of the company's operated production in the Gulf of Mexico remains offline.

This might suggest that offshore operators continue to face acute challenges to deliver their supplies to onshore pipeline and crude terminals as many of those facilities sustained damages during Hurricane Ida's landfall. Bank of America Global Research highlighted the closure of Port Fourchon -- a major energy hub that serves over 250 companies in the Gulf and stands as the onshore link between offshore pipelines and various crude terminals in St. James and Clovelly.

"While the impacts are ultimately transitory, the output is that the return of Gulf of Mexico production coming off record shut-ins stands to be more sluggish and a function of capacity to build up temporary staging and reroute logistics," said the analysts in a note to clients.

In early trading, the NYMEX October West Texas Intermediate contact gained $0.18 to $70.19 bbl, and Brent crude for November delivery advanced $0.44 to $73.47 bbl. NYMEX October RBOB futures rallied 1.84 cents to $2.1811 gallon, and front-month ULSD futures strengthened to $2.1783 gallon.

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

Liubov Georges