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Oil drops near 2-week lows Wednesday as economist deems Hurricane Michael a ‘non-event for oil production'

By Mayra P. Saefong

SAN FRANCISCO
Petroleumworld 10 10 2018

Crude-oil futures dropped Wednesday to settle at nearly two-week lows as traders played down the potential impact of Hurricane Michael on energy infrastructure in the Gulf of Mexico and as risk-off sentiment fueled sharp losses in the stock market.

“While this may be the most damaging hurricane in decades, it turns out to be a non-event for oil and gas production,” James Williams, energy economist at WTRG Economics, told MarketWatch. “We now know the hurricane will not damage production areas, so the shut-in production will return to normal within [four to five] days as the platforms are repopulated with workers.”

West Texas Intermediate crude for November delivery CLX8, -0.72% on the New York Mercantile Exchange fell $1.79, or 2.4%, to settle at $73.17 a barrel—its lowest finish since Sept. 27. The global benchmark, Brent crude for December delivery LCOZ8, -2.82% gave up $1.91, or nearly 2.3%, to $83.09 a barrel on the ICE Europe exchange for its lowest settlement month to date.

Oil prices were also likely “dragged down by the general selloff in risk markets ,” said Colin Cieszynski, chief market strategist at SIA Wealth Management. The S&P 500 index SPX, -3.29% was on track for its longest losing streak in roughly two years.

Meanwhile, the National Hurricane Center classified Michael as an “extremely dangerous,” storm, whose center was moving inland over Florida's Panhandle. Michael was packing maximum sustained winds near 155 miles an hour, with higher gusts.

Read: Footage from Florida Panhandle shows the incredible force of Hurricane Michael

The Bureau of Safety and Environmental Enforcement reported Wednesday that 42.3% of oil production and 31.7% of natural-gas production in the Gulf of Mexico has been shut in because of the hurricane. The hurricane, however, appears to be passing to the east of most of the major oil-and-gas production region.

Read: Oil prices are ‘entering the red zone,' warns International Energy Agency chief

On Nymex Wednesday, November natural gas NGX18, -0.52%  added nearly 0.6% to $3.284 per million British thermal units, continuing to trade at its highest since January as supplies remain tighter than usual for this time of year.

“Once the storm goes through we'll get a better idea if the recent rally [for natural gas] has been due more to the storm or seasonal factors,” said Cieszynski.

Oil prices have also eased after the International Monetary Fund on Tuesday “cuts its global economic growth forecasts for 2018 and 2-19, raising concerns that demand for oil may also slump,” said Dean Popplewell, vice president of market analysis at Oanda.

A monthly report from the Energy Information Administration Wednesday revealed higher 2018 and 2019 price forecasts for West Texas Intermediate and Brent crude oil prices, as well as U.S. production expectations.

The EIA also said it expects average home heating bills to rise this winter because of higher forecast energy prices. It sees a 5% rise in natural-gas bills and a 20% rise for home heating oil.

On Wednesday, however, petroleum-product futures ended lower along with oil Wednesday. November gasoline RBX8, -1.14%  fell 2.7% at $2.02 a gallon and November heating oil HOX8, -0.47%  lost 1.2% to about $2.40 a gallon.

Read: Here's what Trump's ethanol plan means for farmers, refiners and motorists

Reuters reported this week that Iran exported only 1.1 million barrels a day of crude in the first week of October, compared with 1.6 million barrels a day in September and 2.5 million barrels a day in the spring, underscoring declining output from the third-largest member of the Organization of the Petroleum Exporting Countries even before sanctions on oil take hold Nov. 4.

Looking ahead, investors were awaiting weekly inventory reports that were set to be released a day later than usual due to the Columbus Day, observed on Monday. The American Petroleum Institute's report is due late Wednesday, while the EIA's data come out Thursday at 11 a.m. Eastern Time.

Analysts polled by S&P Global Platts expect the EIA to report a climb of 1.61 million barrels in crude inventories for the week ended Oct. 5. Gasoline stocks were forecast to rise by 422,000 barrels, but a 1.71 million-barrel decline was expected for distillate supplies, the survey said.

A monthly oil report from the Organization of the Petroleum Exporting Countries was due Thursday, with the International Energy Agency's report due Friday.

“In the weeks ahead, Hurricane Michael could trigger some additional volatility for inventory figures to the extent that it causes temporarily disruptions to seaborne import/export flows,” said Robbie Fraser, commodity analyst at Schneider Electric, in a note.

________________________

Story by Mayra P. Saefong from MarketWatch.

marketwatch.com
10 10 2018 19:17 GMT

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