Oil futures surged Monday as two tropical storms, expected to land within days, neared the Gulf of Mexico, forcing offshore drilling rigs shutdown, which account for more than half of the region's crude oil production half of its natural gas production is responsible.
The price movement for oil is "marginal" given the large amount of production that is being stopped, said Björnar Tonhaugen, head of oil markets at Rystad Energy. "Today is more of an opportunity to see that even such a sudden event is weak to truly address the concerns Covid-19 has caused market participants."
"Yes, a drop in oil production offers a breath to traders who have seen global production spike in recent weeks amid a lag in demand recovery. But what will really make a difference is news from the recovery front," he said in a daily note.
West Texas Intermediate Crude Oil for October delivery
The US benchmark rose 23 cents, or 0.5%, to $ 42.57 a barrel on the New York Mercantile Exchange. October Brent crude
The global benchmark rose 43 cents, or 1%, to $ 44.78 a barrel on ICE Futures Europe.
Based on the information provided by the operators, the Bureau of Safety and Environment on Sunday estimated that 57.6% of current oil production in the Gulf has ceased, along with 44.6% of natural gas production. That corresponds to an oil production of around 1.1 million barrels per day.
"While the focus is currently on oil exploration, we need to keep an eye on refining activity, which is prone to flooding," said Warren Patterson, director of raw materials strategy at ING, in a note, adding that refinery run rates declined in Hurricane Harvey in 2017 Land from more than 96% to less than 77%, which resulted in a large increase in margins for refined products.
A storm named Marco temporarily turned into a hurricane on Sunday as it moved toward Louisiana. It was then downgraded to a tropical storm on Sunday evening. Another potential hurricane, Tropical Storm Laura, hit the Dominican Republic and Haiti and was on track for the same region of the US coast.
See:Residents are fleeing two possible hurricanes off the Gulf Coast
Analysts said oil could also find support if global stocks rebounded, fueled by optimism about the U.S. Food and Drug Administration's decision to approve emergency use of convalescent plasma, the high-antibody component of blood that is recovered from COVID-19 patient was withdrawn.
Medical experts said the treatment may have benefits for those battling the disease, but that there is no conclusive evidence of its effectiveness while questions remain about when it should be administered and dosed.
Meanwhile, some market watchers said that crude oil gains were held back by ongoing concerns about the prospect for crude oil demand during the ongoing pandemic.
"Both benchmarks actually fell 1% on Friday due to concerns about a growing tide [amid] slow demand, meaning Monday's gains are insignificant to the larger scheme of things," said Mihir Kapadia, CEO by Sun Global Investments. "We won't be able to make solid profits until the news of a vaccine comes along as it will definitely affect the larger economy."
September natural gas
increased 2.1% to $ 2.50 per million thermal units.
jumped 4.3% to $ 1.3393 a gallon while in September heating oil
rose 3.3% to $ 1.2473 per gallon.
Traders buy petroleum products ahead of the storm "in case some refineries are flooded or power goes out," Phil Flynn, senior market analyst at The Price Futures Group, told MarketWatch.
For oil, concerns remain about COVID-19 that "will get worse when this storm hits land," he said. However, if Laura gains strength to become a major hurricane, "it would have the potential to keep production offline longer."