Oil Futures Resume Losses as Traders Eye Gulf of Mexico Output Return

Liubov Georges
By  Liubov Georges , DTN Energy Reporter

WASHINGTON (DTN) -- Oil futures nearest delivery on the New York Mercantile Exchange and Brent crude traded on the Intercontinental Exchange registered losses in afternoon trade Thursday, sending U.S. crude benchmark toward $68 per barrel (bbl). The losses came amid progress in restoring power supplies to Ida-battered refining and offshore oil facilities in the U.S. Gulf of Mexico. Meanwhile, the Chinese government issued a statement saying they would release "national reserve crude oil in phases and batches in rotating manner," which added to the selling pressure.

On the session, NYMEX October West Texas Intermediate contract declined $1.16 or 1.5% to settle at $68.14 per bbl, with losses accelerating post-settlement, and Brent crude for November delivery fell more than $1 to $71.45 per bbl after trading as high as $73.20 per bbl earlier in the session. NYMEX October RBOB futures dropped 3.24 cents to $2.0997 gallon, and front-month ULSD futures declined 2.27 cents for a $2.1137 per gallon settlement.

In early trading, WTI and Brent futures reversed sharply lower after news wires reported that China's National Food and Strategic Reserves Administration would release crude oil from its strategic reserve "on the market through open auction sales" to "stabilize domestic market supply and demand and effectively guarantee national energy security."

Beijing in recent months has released stockpiles of cooper, aluminum, and zinc from its reserves to pressure prices lower as it combats rising inflation. Efforts to hold down consumer costs also tie together with Beijing's recently announced "common prosperity" initiative. The crude contracts quickly pared losses after the market realized China had previously announced this news in late July.

Earlier this week, China's General Administration of Customs reported crude oil imports in August jumped 8% to 10.53 million barrels per day (bpd) -- the first time since April that inflows crossed the 10 million bpd mark.

Oil futures turned positive in late-morning trading ahead of government data, with the U.S. Energy Information Administration reporting total commercial petroleum supplies fell by a massive 10.4 million bbl last week after landfall from Hurricane Ida halted a large chunk of refining and offshore crude production in the U.S. Gulf of Mexico. Oil futures would again reverse lower and accelerate losses in afternoon trading.

Thursday's inventory report also showed the refinery run rate nationwide tumbled a staggering 9.4% last week to a six-month low 81.9%, with refiners processing 1.636 million bpd less last week. Gasoline stockpiles declined a much larger-than-expected 7.2 million bbl last week, and now stand about 4% below the five-year average. Distillate stockpiles also declined by a larger-than-expected 3.1 million bpd to 133.6 million bbl -- about 12% below the five-year average. Demand for distillate fuels, often seen as a proxy for economic activity, decreased 705,000 bpd or 15% from the previous week to 3.608 million bpd.

The Bureau of Safety and Environmental Enforcement said Thursday afternoon 1.39 million bpd or 76% of oil production in the region remains shut. Operators, however, brought back personnel to more than 85% of previously evacuated platforms in the Gulf of Mexico, signaling that the industry is positioning for restarting operations. Currently, four refineries in Louisiana with capacity of about 1 million bpd remain offline, according to the data from the U.S. Department of Energy, with three of these facilities in the process of restarting.

Entergy, who provides power in Louisiana and Mississippi, said on Wednesday that it received permission from the U.S. Nuclear Regulatory Commission to restart operations at its 1.2 GW Waterford 3 nuclear plant that remained closed since Aug. 29, which should further boost electricity supplies across the region.

In financial markets, stocks on Wall Street declined for the fourth consecutive session and the U.S. dollar index eroded 0.17% against a basket of foreign currencies to settle at 92.480, finding little support from better-than-expected U.S. jobless claims for last week. The Department of Labor reported the number of Americans seeking first-time unemployment benefits fell to a pandemic-era low of 310,000. At this level, the number of initial filings for jobless claims is just 50,000 above the pre-pandemic average for March 2020. Claims have dropped from a record 6.149 million in early April 2020.

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

Liubov Georges