Oil prices are ignoring bearish demand flags from OPEC and continue to rise today as traders see US oil production being in a limbo state, bracing for the effect of yet another Hurricane, at a time when it hasn’t fully recovered from Ida.
As a significant part of the US Gulf’s oil and gas machine is still shut, which is a bullish enough event on its own, the prospect of additional production disruptions can only strain supply further and drag prices up as a result of tight market balances.
The price hike is even more striking as the market ignored OPEC’s downwards demand revision. Maybe it was already expected and priced in, maybe the gravity of the supply disruptions in the US is putting a lid on other bearish signals.
If indeed the US supply disruptions are a temporary buffer for prices amid a slowdown in the global oil demand recovery, then prices are carrying an immediate downside risk when the weather effects on production subside.
The real gamble for the market is the weather forecast and traders are now trying to predict how long disruptions may last and how many more surprises this Hurricane season may bring.
On the upside – for prices – Hurricane Nicholas may also affect refinery operations and therefore demand. If refinery outages enter the equation, and if they outlive production disruptions, lower refinery demand could trim the current price gains.
On what would otherwise would be bearish news in a Hurricane-free day, OPEC revised its fourth quarter forecast for the oil demand recovery due to delta variant’s global spread and lagging vaccination campaigns.
Rystad Energy estimates global oil demand to stand at 95.8 million bpd for 2021 and projects it to grow to 100.02 million bpd in 2022.
Meteorologist traders may have an edge in today’s market, which continues to look for clues, but bulls are for the moment pressing ahead, hiking prices for another day.
As weather can change rapidly, current high prices carry risk and the best course of action could be caution after the price movements of the last few weeks.
At some point bearish traders will start using the demand story and some profit taking may be across the corner. For the moment, there’s no crystal ball to guess what’s coming, just the meteo.
