WASHINGTON (DTN) -- New York Mercantile Exchange oil futures and Brent crude traded on the Intercontinental Exchange extended gains into morning trade Tuesday after Nicholas made landfall about 80 miles south of Houston near Sargent Beach as a category one hurricane, likely having disrupted export activity at Corpus Christi, while producers in the offshore U.S. Gulf Coast continue to recover from the disruption brought about by a category four Hurricane Ida 15 days ago.
Unlike Ida however, Nicholas is turning out to be more of a rain event, although as of 5 a.m. ET more than 400,000 customers in the Houston area were left without power that could affect refinery operations in the region. Analysts estimate that the biggest impact from Nicholas will be on crude oil exports, with as much as 12 million per barrel (bbl) of oil potentially not exported during the week.
Shell said on Monday that it was evacuating nonessential personal from its offshore Perdido platform as a precautionary measure ahead of Nicholas. Bureau of Safety and Environmental Enforcement data shows 43.6% or 793,522 bpd of offshore oil production in the U.S. Gulf of Mexico remains offline.
In its monthly oil market report released this morning, International Energy Agency noted the supply disruption from Hurricane Ida is now nearing 30 million bbl, as offshore installations and refineries in the region have been slow to restart due to severity of the storm.
"Already in August, production outages led to further sharp declines in inventories. Preliminary data show OECD oil stocks falling by more than 30 million barrels (mb) last month, extending steep losses over June and July. OECD total industry stocks drew by 34.4 mb in July and stood at 2 850 mb, 185.7 mb lower than the 2016-2020 average and 120.3 mb below the pre-Covid, five-year average" said IEA.
On the demand side, Paris-based agency downgraded its third-quarter projections by 200,000 barrels per day (bpd), mainly driven by mobility restrictions in China and southeast Asia. IEA, however, expects global oil demand to rebound by a sharp 1.6 million bpd in October and continue to grow until end-year as COVID-19 show signs of abating. Global oil demand is now expected to rise by 5.2 million bpd this year and by 3.2 million bpd in 2022. The new projections follow a more upbeat market outlook from the Organization of the Petroleum Exporting Countries that held global oil demand projections for this year steady, forecasting annualized growth of 6 million bpd despite the rapid spread of the Delta variant across major economies.
"Oil demand in third quarter 2021 has proved to be resilient, supported by rising mobility and travelling activities, particularly in countries that part of the Organization of Economic Cooperation and Development," said OPEC in their Monthly Oil market Report released Monday.
In financial markets, U.S. dollar index reversed off three-week high 92.650 in overnight trade and equity futures edged slightly higher as investors turned cautious ahead of the key reading on U.S. inflation in August. Last month, Consumer Price Index increase 0.5% for a 5.4% annual jump -- making the reading the highest in 13 years. August CPI index is expected to cool off slightly to a 0.4% monthly increase and 5.3% annual gain.
A hotter-than-expected August reading could prompt the Federal Reserve to announce the tapering of its $120 billion in monthly bond purchases as early as next week when the Federal Open Market Committee holds its policy meeting on Sept. 21-22.
Conversely, a cooling of inflation pressures could give Federal Reserve Chairman Jerome Powell another month or two of breathing room to monitor incoming data and the pace of domestic COVID-19 infections.
In early morning trading, NYMEX October West Texas Intermediate contract gained $0.38 to $70.79 bbl, and Brent crude for November delivery added $0.39 to $73.85 bbl. NYMEX October RBOB futures gained 0.83 cents to $2.1692 gallon, and front-month ULSD futures advanced 0.84 cents to $2.1667 gallon.
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