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Oil settles lower as traders watch Hurricane Ida recovery efforts, ahead of the OPEC+ meeting

By Myra P. Saefong and William Watts

WTI posts a 7% monthly loss; OPEC+ output decision expected Wednesday

Oil futures settled lower Tuesday, with traders watching recovery efforts for U.S. Gulf Coast refinery operations in the wake of Hurricane Ida.

Traders were also looking ahead to a Wednesday meeting of the Organization of the Petroleum Exporting Countries and its allies, a group collectively known as OPEC+.

"The flooding caused by Ida is going to slow the efforts in assessing how much damage has been done to oil production and refineries," said Brian Swan, global commodity analyst at Schneider Electric, in a market update. "Almost the entire state of Louisiana lost power on Monday, keeping significant refining capacity offline until it can be restored."

The temporary disruption to output is "significant," but the impact to crude markets "should be minimal as the market remains indecisive near-term," said Swan.

West Texas Intermediate crude for October delivery , the U.S. benchmark, fell 71 cents, or 1% to settle at $68.50 a barrel on the New York Mercantile Exchange. For the month, prices for the front-month contract ended 7.4% lower -- the first monthly loss since March, according to Dow Jones Market Data.

Global benchmark October Brent crude , which expired at the end of the trading session, lost 42 cents, or 0.6%, at $72.99 a barrel on ICE Futures Europe, for a monthly loss of 4.4%. The most actively traded November contract fell 60 cents, or 0.8%, to $71.63 a barrel.

Oil prices have fallen this month, with analysts at Velandera Energy Partners characterizing that decline as a "correction, since the market had gotten ahead of itself," said Manish Raj, the company's chief financial officer.

"Current prices are healthy enough for oil producers to be profitable and healthy enough to sustain demand," he told MarketWatch. "The markets are currently balanced with both supply and demand gradually increasing, therefore we expect prices to remain generally stable."

As producers assess damage and begin to resume output in the Gulf, it will probably take somewhat longer for crude oil processing to return to normal "as the refineries first have to be checked for damage, and any damage then repaired," said Carsten Fritsch, analyst at Commerzbank. "If oil production recovers more quickly than demand from refineries, crude oil stocks will rise. The upcoming inventory data will certainly be influenced significantly by the hurricane."

The Bureau of Safety and Environmental Enforcement on Tuesday estimated that 93.69% of current oil production in the Gulf of Mexico was shut in, along with 94.47% of natural-gas production. That compared with shut-ins of 94.6% of Gulf oil production and 93.57% of natural-gas production on Monday.

"As Louisiana-based producers, we know that our wells are designed to withstand hurricanes of Ida's strength," said Velandera's Raj. He said the hurricane disruption to domestic oil production has been "minimal as wells are already being brought online" so the hurricane-induced oil price spike has receded.

However, analysts at S&P Global Platts estimated about 2.2 million barrels a day of refining capacity remained offline as of Monday, with the majority of plants without power.

Against that backdrop, gasoline futures rose sharply on Monday, but declined Tuesday.

On Nymex, September gasoline fell 1.3% to $2.28 a gallon, ending 3.5% lower for the month, and September heating oil lost 0.4% to $2.13 a gallon, for a monthly loss of 3.1%. The September contracts expired at the end of the day's session.

The most active October gasoline contract fell nearly 0.6% to $2.14 a gallon and October heating oil declined by 0.4% to $2.13 a gallon.

On average, analysts polled by S&P Global Platts expect the Energy Information Administration on Wednesday to report weekly U.S. supply declines of 4.4 million barrels for crude, 1.8 million barrels for gasoline and 500,000 barrels for distillates.

Meanwhile, OPEC+ is slated to meet Wednesday. The group agreed previously to unwind production cuts, boosting output in monthly increments of 400,000 barrels a day beginning this month. The Biden administration subsequently pressed the group to further increase output.

Read:To pause or not to pause oil output increases is the question OPEC+ faces as it meets Wednesday

Reuters, citing OPEC+ sources, reported Monday that the group is unlikely to make any changes to its plans.

An OPEC+ committee said that despite added production this year at the planned pace of 400,000 barrels per day, stockpiles will draw, Phillip Streible, chief market strategist at Blue Line Futures, told MarketWatch.

In recent comments, Kuwait's oil minister reportedly expressed concern over the rise in COVID-19 cases and said OPEC+ should reconsider the previous decision to raise oil production.

Kuwait's concerns might be shared by other OPEC members who are "afraid to speak up," said Phil Flynn, senior market analyst at The Price Futures Group. Still, OPEC+ is probably not in a situation where it can delay the production increases, he said.

Also on Nymex, natural-gas futures rose, with the October contract climbing 1.7% at $4.38 per million British thermal units. It marked an 11.8% rise for the month, up five months in a row.

-Myra P. Saefong


(END) Dow Jones Newswires

08-31-21 1510ET

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