Crude-oil futures rallied Tuesday, with the global benchmark inching closer to the key $80 mark, as a hurricane approaching the U.S. East Coast and concerns over renewed sanctions on Iran threatened the flow of oil.
Traders also awaited weekly data that are expected to show a decline in U.S. crude inventories.
October futures on West Texas Intermediate crude CLV8, +2.81% the U.S. benchmark, rose $1.70, or 2.5%, to $69.24 a barrel. A settlement around this level would be the highest in a week. November Brent crude LCOX8, +2.21% was up $1.50, or 1.9%, to $78.87 a barrel on ICE Futures Europe, which would be the highest finish for a front-month contract since July, according to FactSet data.
Traders continued to keep a close eye on Hurricane Florence as it approaches the U.S. East Coast. Authorities ordered widespread evacuations along the coasts of the Carolinas and Virginia. The storm track could change, but the latest forecasts indicate tropical storm-force winds could begin to hit the Carolinas by early Thursday.
Concerns that Florence could weaken energy demand as the East Coast eventually recovers from the storm, contributed to a weaker tone for the U.S. benchmark on Monday, analysts said.
“The oil market prices rallied initially in the path of the storm, only to sell off later as it fears of potential demand destruction” said Phil Flynn, senior market analyst at Price Futures Group. “While millions are in the path of the storm, they are being advised to fill up their gas tanks and to get away,” prompting an uptick in fuel demand.
“Most of the refineries in North Carolina are more inland, but there are worries that flooding and power outages could shut down the Colonial Pipeline, the main line to move gasoline and diesel from the Houston, Port Arthur and Lake Charles refineries northeast, running through states in the Southeast to its end-point in Linden, N.J.,” he said.
Among the oil products, October gasoline RBV8, +2.73% rose 2.6% to $2.01 a gallon, while October heating oil HOV8, +1.62% was up 1.5% at $2.252 a gallon.
October natural gas NGV18, +0.36% added 0.2% to $2.81 per million British thermal units.
Still, some analysts expect the impact on energy from the hurricane to be modest and temporary.
The hurricane “may not have much impact on energy as it is far away from the big offshore Gulf of Mexico producing areas,” Colin Cieszynski, chief market strategist at SIA Wealth Management, told MarketWatch Tuesday. “As we saw with Tropical Storm Gordon, as it is, the impact of storms on WTI has become smaller over the years and any impact tends to blow over quickly.”
Meanwhile, “sanctions kicking in on Iran, reducing their export supply may be having some impact but this has been expected for months and should have been priced in already,” said Cieszynski. The sanctions come into effect in November, but some countries have reportedly been cutting back on their imports of Iranian oil ahead of that.
In a monthly report issued Tuesday, the Energy Information Administration said that Iranian crude production was down 200,000 barrels a day in August compared with July. The government agency also raised average price forecasts for WTI and Brent, and lowered its U.S. crude output expectations, for 2018 and 2019.
Monthly oil reports will come from the Organization of the Petroleum Exporting Countries Wednesday and International Energy Agency Thursday.
Overall, physical demand for oil “remains robust,” said Eugen Weinberg, analyst at Commerzbank, in a Tuesday note. Earlier data showed China’s August crude imports were up 12.9% year over year, while imports over the first eight months were up 6.5% over the same period a year ago, he said.
Looking ahead, weekly U.S. petroleum-storage data are due late Tuesday from the American Petroleum Institute followed by official weekly EIA data on Wednesday.
Analysts, on average, expect the EIA to report a fall of 2.7 million barrels in crude stockpiles for the week ended Sept. 7, according to an S&P Global Patts survey. They also expect gasoline supplies to be unchanged and distillate stocks to climb by 2.3 million barrels for last week.
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