Crude Oil Gains Amid Gulf Hurricane Threat, Libya Supply Uncertainty

Petroleum Price

• Crude oil prices began the week with gains as traders took a breather after the latest selloff and in anticipation of a potential hurricane forming in the Gulf of Mexico.
• In midmorning trade in Asia, Brent crude had risen by over 1% from last Friday's close, while West Texas Intermediate (WTI) was up by about 1.30% from last week.
• Despite this, crude oil prices had previously declined by 1.82%, settling at ₹5,704, due to persistent concerns over the global oil demand outlook.
• This drop was driven by weaker-than-expected U.S. private sector and non-farm payroll growth data, along with the possibility of increased oil supply from Libya.

Petroleum Demand and Supply

• Although Libyan oil exports remain largely halted, some tankers have been allowed to load crude from storage. For instance, the Kriti Samaria tanker is set to load 600,000 barrels of crude from Libya’s Zueitina port and transport it to Italy.
• Meanwhile, U.S. crude oil inventories dropped by a significant 6.9 million barrels in the last week of August, far exceeding expectations of a 1.1 million barrel draw.
• This marked the ninth consecutive weekly decline in domestic oil stocks. However, gasoline inventories rose by 0.8 million barrels, against expectations of a 0.7 million barrel draw, while distillate fuel inventories fell by 0.4 million barrels.
• From a technical perspective, crude oil is facing fresh selling pressure, with open interest increasing by 0.25% to 21,233 contracts. Prices are currently supported at ₹5,606, and a break below this level could lead to a test of ₹5,509. On the upside, resistance is seen at ₹5,851, and a move above this could push prices toward ₹5,999.
• "OPEC+'s announcement to delay the start of its planned output increase signals that the producers' group remains focused on balancing the market," Morgan Stanley analysts noted in a report cited by Bloomberg. "Unless demand weakens further, we estimate Brent is likely to remain anchored around the mid-$70s."
• It's noteworthy that last week’s selloff did not halt even after OPEC signaled it would delay returning supply to the market from October, and even after the EIA reported another sizable draw in crude oil inventories for the last week of August.

Petroleum News

• The October official selling price (OSP) for Arab Light crude fell by 70 cents to $1.30 per barrel above the Oman/Dubai average, Saudi Aramco announced late on Friday, marking the lowest level since November 2021.
• The drop is at the deeper end of expectations, as three of five sources at Asian refineries had forecasted a price decrease of between 50 and 70 cents per barrel, according to a Reuters survey.
• This price reduction occurred during a week of sharp declines in global crude futures, with Brent falling to its lowest level since December 2021.
• An Asian refinery source commented that the cut was deeper than expected, adding that ample supply currently exists in the market.
• The October OSP for Arab Heavy crude for Asia saw an even steeper reduction of $1.00 per barrel, as demand is expected to taper off following the conclusion of peak summer fuel oil consumption. At the same time, Middle Eastern producers are facing increasing competition from Canadian exports due to the expansion of the Trans Mountain pipeline (TMX).

Expert Opinion

• Rising supplies of diesel and gasoline have driven Asian refiners’ margins to their lowest seasonal levels since 2020, following the end of peak summer travel demand. The price cuts for Asia, which accounts for around 80% of Saudi Arabia’s oil exports, follow reports that OPEC+ has agreed to delay a planned oil output increase for October and November.
• Saudi Arabia has also reduced prices for other regions, with an 80-cent per barrel cut across all crude grades for Northwest Europe and the Mediterranean.