Oil prices slipped on Tuesday amid concerns that power outages and flooding in Louisiana after Hurricane Ida will cut crude demand from refineries at the same time global producers plan to raise output.
The prices were also weighed down by weaker manufacturing data from China, where factory activity expanded at a slower pace in August compared with the previous month.
U.S. West Texas Intermediate (WTI) crude futures were down 54 cents, or 0.78%, to $68.58 a barrel, reversing some of Monday’s gains.
“The oil market is in a wait and watch mode as both demand- supply impact of Hurricane Ida is assessed,” said Ravindra Rao, vice president, commodities at Kotak Securities.
“Also, market players are on sidelines ahead of OPEC+ review meeting tomorrow.”
Hurricane Ida knocked out at least 94% of the offshore Gulf of Mexico oil and gas production and caused “catastrophic” damage to Louisiana’s grid.
The loss of power could last three weeks, utilities officials said, slowing efforts to repair and restart energy facilities, which could also take at least two weeks to fully resume operations.
“With companies currently assessing damages, a current timeline for how long shuttered capacity will be down is still uncertain,” RBC analysts said in a note.
With “catastrophic” damage to the grid in Louisiana, power outages could last three weeks, utility officials said, which would slow efforts to repair and restart energy facilities.
On the supply side, about 1.72 million bpd of oil production and 2.01 million cubic feet per day of natural gas output remained offline in the U.S. side of the Gulf of Mexico following evacuations at 288 platforms.
Also keeping a lid on oil prices is the prospect that the Organization of the Petroleum Exporting Countries (OPEC) and allies, together known as OPEC+, will agree to go ahead with plans to add another 400,000 bpd of supply each month through December.
“Brent crude between $70 and $75 a barrel seems to be the grouping’s sweet spot, and with the futures curve in backwardation, demand remains robust despite the short-term noise,” said Jeffrey Halley, senior market analyst at OANDA.
OPEC+ will meet on Wednesday. Delegates say they expect the production increase to go ahead, however Kuwait’s oil minister said on Sunday that plan could be reconsidered amid concerns about raging COVID-19 infections in Asia limiting fuel demand.