Oil reaches a one-week high as U.S. supply fears prevail

Oil surged on Monday, boosted by fears about the shutdown of output in the world’s largest producer, the United States, as a result of Hurricane Ida damage, although economists predicted a steady market in the coming months. At 0858 GMT, Brent crude was up 62 cents, or 0.9 percent, to $73.54 a barrel, while WTI crude in the United States was up 64 cents, or 0.9 percent, to $70.36.

Brent has been trading in a tight range between $70 and $74 per barrel over the last three. “Oil prices may not have much room to rise in the near term, but at the same time are not expected to crash soon,” said Stephen Brennock of broker PVM. As of last week, the Energy Information Administration (EIA) predicted Brent prices to remain near current levels for the balance of 2021, averaging $71 per barrel in the fourth quarter.

“Markets still need clarity on the virus impacts beyond the very near term and until we get that, it seems like most assets, including oil, may continue to drift sideways,” Howie Lee, an economist at Singapore’s OCBC bank.

There was still some support for the prices due to Hurricane Ida’s impact on the United States output. An estimated 34 (or 1.4 million barrel per day) of offshore oil production in the Gulf of Mexico is on hold since late August. “Hurricane Ida was unique in having a net bullish impact on U.S. and global oil balances – with the impact on demand smaller than on production,” Goldman Sachs (NYSE:GS) analysts said in a note dated Sept. Baker Hughes, a provider of energy services, reported that the number of rigs in operation in the United States increased in the last week, indicating that production may increase in the following weeks.

Because of an increase in coronavirus cases, investors’ attention will be focused this week on anticipated changes to the oil demand outlook from OPEC and the International Energy Agency (IEA), in addition to Ida’s impact. In the coming days, OPEC is expected to cut its projections for 2022, according to two sources familiar with the situation. After a settlement was reached on Sunday between the U.N. Atomic watchdog and Iran over the maintenance of monitoring equipment, there is still a possibility of supply disruptions from China’s planned release of oil from strategic reserves.

Monday, the Chinese government announced plans to sell crude oil from strategic reserves at a later date.