Crude settled higher on Tuesday as companies shut down some U.S. Gulf of Mexico oil production ahead of an approaching storm, although surging coronavirus infections and rising Libyan supply limited gains.
Companies including BP BP.L, Chevron CVX.N, Shell RDS.L and Equinor ASA EQNR.OL evacuated rigs or closed facilities. So far producers have shut 16%, or 294,000 barrels per day (bpd) of oil output due to Zeta, which weakened to a tropical storm on Tuesday from a hurricane on Monday, the U.S. National Hurricane Center (NHC) said.
Brent crude LCOc1 closed up 75 cents, or 1.9%, at $41.21 per barrel by 1:22 EDT (1722 GMT). U.S. oil CLc1 gained $1.01 cents, or 2.6%, to $39.57. Both contracts fell more than 3% on Monday.
The storm-induced bump in prices may be short-lived, however, with demand expected to weaken anew with coronavirus cases rising.
“We have a lot of weakness…no vaccine, no stimulus, and the very real possibility of a contested election in a couple days, and a stock market that won’t react positively to that,” said Bob Yawger, director of energy futures at Mizuho.
Libya’s production should rebound to 1 million bpd in coming weeks, complicating efforts by other OPEC members and allies to restrict output.
The Organization of the Petroleum Exporting Countries and allies, known as OPEC+, are planning to increase production by 2 million bpd from January after record output cuts this year. That would take overall reductions to roughly 5.7 million bpd – still an enormous amount by the standards of major oil producers, but it may not be enough to offset weak demand.
Russian President Vladimir Putin, speaking last Thursday, did not rule out extending the cuts for longer.
“As the virus continues to spread, the odds of additional OPEC + production tends to diminish in helping to provide some balance to the market,” said Jim Ritterbusch, president of Ritterbusch and Associates.
The latest weekly U.S. oil inventory figures, due later on Tuesday and on Wednesday, are expected to show rising supplies. Analysts polled by NYK Daily expect crude stocks to rise by about 1.1 million barrels.