Oil slides as offshore US output slowly returns to normal

Singapore - Oil prices fell on Friday as more supply came back online in the US Gulf of Mexico after two hurricanes, but both benchmark contracts are on track to post weekly gains of about 4% as the recovery in output is seen lagging demand.

Brent crude futures fell 17c, or 0.2%, to $75.50 a barrel at 3.59am GMT, giving up most of the previous session’s 21c gain.

US West Texas Intermediate (WTI) crude futures were 18c, or 0.3%, lower at $72.43 a barrel, after settling unchanged on Thursday.

“Oil prices are slightly softer as offshore US production continues to slowly return and as return of normal across large parts of Asia hit some road bumps and as some countries still struggle to contain the Delta variant spread,” said Edward Moya, senior market analyst at Oanda.

Both contracts were on course to climb nearly 4% for the week as output in the US Gulf of Mexico has recovered more slowly than expected after Hurricane Ida damaged facilities in August and tropical storm Nicholas hit this week.

“Crude prices are having another good week despite broad weakness across commodities that stemmed from a resilient US dollar,” said Moya.

The dollar climbed to a three-week high on Friday, making dollar-traded crude imports more expensive for countries using other currencies.

Up to Thursday, about 28% of US Gulf of Mexico crude production remained offline two-and-a-half weeks after Hurricane Ida hit.

“It's still taking longer than people thought in terms of that coming back. That’s been a supportive factor in the market,” Commonwealth Bank commodities analyst Vivek Dhar said.

“We’re going to go into more [supply] deficit conditions, that certainly seems to be the view.”

Preliminary data from the US Energy Information Administration showed US crude exports in September slipped to between 2.34-million and 2.62-million barrels per day from 3- million barrels per day in late August.

Dhar also pointed to data from the International Energy Agency this week showing Organization of Economic Co-operation and Development oil inventories falling to a low in November, as the recovery in fuel demand is expected to outpace supply.

The risk of weakened demand in Southeast Asia has abated as Covid-19 cases appear to have peaked in countries such as Indonesia, Malaysia and Thailand, he said.

Reuters