The benchmark crude WTI (CM:CL) gained in trading on Monday, recovering from last week’s steep losses as a potential hurricane threatening the U.S. Gulf Coast drove prices higher. According to analysts, this rebound was largely influenced by concerns over a looming storm near the Gulf Coast, a critical hub for U.S. oil refining.
Don't Miss our Black Friday Offers:
- Unlock your investing potential with TipRanks Premium - Now At 40% OFF!
- Make smarter investments with weekly expert stock picks from the Smart Investor Newsletter
Hurricane Threatens the U.S. Gulf Coast and Oil Refining Operations
Further intensifying market fears, the U.S. National Hurricane Center reported on Sunday that a weather system in the southwestern Gulf of Mexico is expected to intensify into a hurricane before reaching the northwestern Gulf Coast. Given that the region accounts for about 60% of U.S. refining capacity, a direct hit could significantly disrupt operations. If the storm makes landfall along the Texas coastline, it will be the first time in 16 years that two hurricanes have struck the state in a single season. This scenario is reminiscent of 2008, when hurricanes Dolly and Ike hit Corpus Christi, Galveston, and Houston.
OPEC+ Delays Oil Output
In addition to weather-related concerns, the oil market’s focus has also shifted towards OPEC+ actions. According to a Reuters report, PVM analyst John Evans noted that while Monday’s price recovery is being fueled by hurricane warnings, the broader focus remains on demand uncertainty and OPEC+ actions. Last week, the group of oil producers, the Organization of the Petroleum Exporting Countries (OPEC+), decided to delay a planned output increase of 180,000 barrels per day for October by two months, a move made in response to falling crude prices.
Economic Concerns in the U.S. and China Lead to Uncertainty
Moreover, economic conditions are playing a significant role in oil price dynamics. Morgan Stanley recently lowered its Brent price forecast for the fourth quarter from $80 to $75 per barrel, cautioning that prices are likely to stay at this level unless demand weakens further. In particular, economic concerns in China, driven by an economic slowdown and falling refining margins in Asia, have left the market jittery.
Adding to the market uncertainty, a U.S. jobs report released on Friday showed that non-farm payrolls for August grew less than anticipated. However, on a more positive note, a dip in the jobless rate could prompt the Federal Reserve to slow its pace of interest rate cuts, which would typically support higher oil demand by stimulating economic growth.
Finally, it’s important to note that Brent crude has recently dropped to its lowest levels since late 2021, as concerns over waning Chinese demand have coincided with signs of a potential U.S. economic slowdown. Despite these concerns, global oil output remains high, compelling OPEC+ to postpone its planned easing of production curbs.
What Is the Outlook for Oil?
While oil prices are trending higher today, overall, oil prices have slid by more than 11% over the past month. Even the TipRanks Technical Analysis tool is flashing a Strong Sell signal for oil on a monthly time frame.
Ready to “commodi-tize” your knowledge? Click here to dive into the world of commodities on TipRanks
