Storm system looks to enter the Gulf of Mexico on Sunday
Oil futures traded lower Thursday, taking a breather after three consecutive winning sessions, with investors assessing the outlook for demand ahead of the end of summer driving season in the U.S.
Meanwhile, natural-gas futures climbed by more than 4% as traders eyed a storm system that's forecast to intensify and enter the Gulf of Mexico on Sunday, posing a threat to oil and natural-gas operations in the region. U.S. government data also showed a smaller-than-expected weekly climb in supplies of the fuel, contributing to the natural-gas price rally.
"The state of the COVID-19 delta variant continues to inject uncertainty in the market," said Robbie Fraser, global research & analytics manager at Schneider Electric, in a daily market update.
"On one hand, many countries continue to see record cases and potential travel restrictions," but major economies like China and India have made "significant strides in reducing the number of delta-linked cases, with demand improvement set to follow," he said.
The U.S. hurricane season is also in full swing and a storm is looking to potentially disrupt offshore operations in the Gulf of Mexico, said Fraser.
More production is concentrated onshore in the modern shale era so the loss of offshore output has limited impact, he said. But if a major storm hits refining infrastructure along the Texas coast, "the price impact, particularly to refined fuels in the U.S., can be significant."
West Texas Intermediate crude for October delivery fell 72 cents, or 1.1%, to $67.64 a barrel on the New York Mercantile Exchange. October Brent crude, the global benchmark, declined 73 cents, or 1%, to $71.52 a barrel on ICE Futures Europe. November Brent, the most actively traded contract, was off 74 cents, or 1%, at $70.54 a barrel.
Based on trading in the front-month contracts, WTI remains up nearly 9% for the week, while Brent is up almost 10%.
Crude has rebounded sharply from last week's rout, finding support on expectations the spread of the coronavirus delta variant was near its peak. Weekly U.S. data released Wednesday showed a further decline in U.S. crude inventories and a rise in implied demand for gasoline.
"Bigger-than-expected storage draws in crude oil and gasoline should help sustain the rally currently under way from three-month lows," said Robert Yawger, executive director for energy futures at Mizuho, in a note.
"Generally speaking, the ideal summer driving season should see refiners draw on crude-oil storage in an effort to satisfy gasoline demand without adding too much gasoline and killing the golden goose," he said. "Refiners have done an excellent job of feathering that math this summer, consistently posting crude oil draws while still managing to drain gasoline storage to multi-month lows."
Summer driving season in the U.S. is the period between the Memorial Day weekend in late May and Labor Day weekend. Labor Day this year falls on Sept. 6.
With distillate demand remaining at the previous week's high level, overall fuel demand reached its highest level since March 2020, said Carsten Fritsch, commodity analyst at Commerzbank, in a note. "That said, the summer driving season will be ending in around 1 1/2 weeks -- after which a period of weaker demand will begin," he added.
Among the petroleum products, September gasoline lost 1.6% to $2.26 a gallon and September heating oil shed 1% to $2.10 a gallon.
A weather disturbance in the Atlantic continued to develop, and it's expected to enter the Gulf of Mexico Friday night, moving into the central or northwestern U.S. Gulf Coast by Sunday and Monday, according to the National Hurricane Center.
"Depending on the severity of the storm and where it hits, although offshore natural gas production would likely decline" between one and two billion cubic feet per day, said Christin Redmond, commodity analyst at Schneider Electric.
However, nearly 10 billion cubic feet a day of liquid natural gas export infrastructure is located on the coast of Louisiana and Texas, so "if several of the export facilities are affected, demand could decline by a larger amount than supply," she said in a daily report.
Natural-gas futures headed higher after U.S. Energy Information Administration reported that domestic supplies of natural gas rose by 29 billion cubic feet for the week ended Aug. 20. That was smaller than the average increase of 37 billion cubic feet expected by analysts polled by S&P Global Platts.
September natural gas rose 4.7% to $4.08 per million British thermal units, ahead of its expiration at the end of Friday's trading session. Prices haven't settled above $4 since Aug. 11, FactSet data show.