It is a great Wednesday for oil prices as today they are receiving support from all sides.
US production that was shut-in due to the Hurricane Ida is struggling to return as fast as refinery capacity does, and that means refinery demand is not met with the supply it normally would from producers.
Another important producer, Venezuela, is trying to get its barrels back to the market, but the second round of negotiations in Mexico did not end in a conclusive agreement, which supports prices as it keeps supply from growing.
As per the latest data published by the BSEE, almost 80%, or 1.44 million barrels per day of crude oil production still remained offline as of Sep 7, 2021, down only 4% from Sep 6, 2021.
The recovery in crude oil production from the US GoM post-Hurricane Ida has been sluggish and we estimate the monthly impact on US GoM’s Sep 2021 oil production could now go as high as 500,000 barrels per day.
This is one of the largest hurricane production outages in the US GoM in recent years, and supply has felt it, as Ida’s impact has already surpassed that of Hurricane Katrina.
In Venezuela, after the latest negotiation round, the possibility of relaxation of the US sanctions is looking very slim, a prospect that lends support to oil prices.
Analysts continue to assume that, with the Afghanistan and Iran situation at hand, the Biden administration would grant modest sanctions relief to Venezuela like allowing restart of the crude-for-diesel swaps.
A sanctions relief would allow Venezuelan production to increase to 600,000 barrels per day by December 2022.
However, Rystad Energy continues to believe that the supply disruptions in Venezuela due to power and dilutant shortages would continue unless wider sanctions relief is provided by the US.
These disruptions could cap Venezuela’s crude oil production in the range of 450,000 to 500,000 barrels per day till 1H2022, and such long shut-ins can impact the return of Venezuela as a major oil producer in the medium to long term.
Marginally bullish news flow on global Covid developments, or rather, lack of negative news flow, also lends support to prices.
For the time being, silence is bliss, although certain technical crude price indicators are approaching early warning signal-levels for a possible correction.
Markets will be looking closely at the official EIA oil stocks data due later today, which will shed the first official light on the impact of Hurricane Ida on US balances, and give some guidance for the supply-demand recovery in the near term as the US GoM recovery continues to remain sluggish.
