Oil could top $80 as natural gas prices increase
Post-hurricane recovery of oil and gas operations in the Gulf of Mexico could ease the production squeeze that has lifted crude prices in recent weeks, but oil still could be on a path to $80 a barrel this winter, analysts say.
Hurricane Ida, which made landfall in Louisiana on Aug. 29, took nearly all oil and gas production in the Gulf offline. As of Thursday, about 16 percent of offshore oil production and 24 percent of natural gas production was still idled, the federal government said.
Crude oil prices are up more than 20 percent since late August, when storm preparations began, and the rally has shown no signs of letting up. West Texas Intermediate, the U.S. benchmark, settled Monday at $75.45 per barrel, up $1.47 over Friday.
“U.S. crude supplies have been slow to resume following storm impacts and, overall, non-OPEC outages and maintenance surged over August and September,” said Paul Hickin, editorial director at S&P Global Platts in London.
That leaves the U.S. economy with a bit of a supply problem. Commercial crude oil inventories are about 8 percent below the fiveyear average for this time of year, the Energy Information Administration said last week.
Supplies of refined petroleum products are also tight. Gasoline inventories were 3 percent below average for this time of year and stockpiles of distillates, such diesel fuel, were 14 percent below average.
Traders will focus on weekly petroleum inventory data, which will be released Wednesday and could indicate whether hurricanerelated production issues have subsided.
Hickin said it’s only a matter of time before more U.S. crude oil comes back online. Rig counts
have been rising as of late, riding the extended rally for crude oil, Hickin said. The U.S. added nine rigs last week, including three in Texas, according to oilfield services firm Baker Hughes.
OPEC, too, will likely put more barrels on the market in the fourth quarter, Hickin said. Chatter among the cartel’s member nations is already moving the needle for crude prices, with Iraq’s oil minister saying last week that the group was keen to keep prices above $65. Planned and unplanned disruptions from OPEC members such as Nigeria and Libya, could boost oil to $80 per barrel, if only for a brief period, Swiss investment bank UBS said last week.
WTI was last above $80 a barrel in October 2014.
The spillover from extraordinarily high natural-gas prices also could lift oil prices to past $80 a barrel as customers turn to other fuels for heating and electricity generation.
“If natural gas prices continue to surge over tight inventories, demand for alternative sources of energy, such as crude, will likely see additional demand this winter,” said Edward Moya, a senior market analyst at trader OANDA.
Vitol Chief Executive Officer Russell Hardy is among those who see crude prices surging past $80, forcing OPEC+ producers to add more supply into the market.
Hardy’s bullish view echoes that of Goldman Sachs Group, which is predicting higher crude prices, especially if the winter months are colder than normal.
European gas stockpiles will be at about 78 percent of normal levels during October, an indication of a tightening market in the colder months when demand surges, Hardy said.