Crude oil prices rallied higher on Wednesday at Asia’s trading session. This was triggered by American oil producers shutting down most of their oil production in the Gulf of Mexico ahead of a pending hurricane storm and high hopes on China-U.S. trade talks.
Brent crude futures gained, trading at $45.94 per barrel as at 0515GMT. West Texas Intermediate crude was also up 0.03%, trading at $43.37 per barrel. Both crude oil benchmarks settled at a five-month high yesterday.
However, the recent upside was capped amid renewed concerns over the COVID-19 pandemic which had earlier curbed fuel demand. There have been reports from Europe and Asia about patients being re-infected with COVID-19, a situation that has raised concerns about future immunity.
Stephen Innes, the Chief Global Market Strategist at AxiCorp, in a note to Nairametrics, commented on the most important macro that crude oil traders are presently concerned about as the storm sets its course on the Gulf of Mexico, raising fears that energy supplies could be disrupted. He said:
“Oil and gasoline futures charged to a five-month high as hurricane Laura takes dead aim on the US Gulf coast, which is home of the country’s most considerable refining capacity.
“Crude futures are tracking gasoline higher as the US energy complex is fronting catastrophic circumstances. The back to back storms have not only caused producers to shut in 1.5Mbd (>80%) of production in response but also some of the world’s largest refineries have reduced operations or shuttered plants in advance of Laura raising concerns of a potential near-term gasoline shortage.”
The key to near term price movements will be the extent of any damage caused by the hurricanes, bolstered by the support from broader risk markets once the hurricane price pressure eases, as it always does.