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U.S. Oil Loses Grip on $70 Price Level after Fresh Selloff

Oil futures declined on Tuesday, with tthe U.S. benchmark falling below the $70-a-barrel mark, after a broad selloff in the previous session attributed to jitters around troubled Chinese property giant Evergrande.

Despite an overnight run-up, oil prices were paring a chunk of those gains in Tuesday dealings, analysts at Blue Line Futures wrote in their latest note.

Even so, “bringing a bullish tailwind” are expectations for a drawdown of U.S. crude inventories and reports that OPEC+ — the Organization of the Petroleum Exporting Countries and their allies — is 116% compliant in August with their oil production curbs, they said.

“We expect bullish tailwinds to show up from the risk-landscape in the near term,” analysts at Blue Line Futures said. “From there, we do believe a subsiding delta narrative can bring a strong year-end rally,” as the U.S. has begun “laying a plan to lift travel bans for international travelers and we expect this to be an ongoing narrative in Q4.”

West Texas Intermediate crude for October delivery fell 39 cents, or 0.6%, to $69.90 a barrel on the New York Mercantile Exchange, ahead of the contract’s expiration at the end of the trading session. Front-month contract prices haven’t settled below $70 since Sept. 10. November WTI crude, the most actively traded contract, was down 39 cents, or 0.6%, at $69.75 a barrel.

November Brent crude, the global benchmark, lost 26 cents, or 0.4%, to $73.66 a barrel on ICE Futures Europe.

Oil, along with a range of other commodities, equities and other assets perceived as risky, sold off Monday, a move tied in large part to worries surrounding a potential default by Evergrande.

Meanwhile, data shows U.S. oil output in the Gulf of Mexico continues to recover slowly from Hurricane Ida, which hit the Louisiana coast on Aug. 29. The Bureau of Safety and Environmental Enforcement late Monday said more than 18% of production in the Gulf remained shut in, equal to 331,078 barrels a day of output.

“More than 80% of offshore platforms have returned to operation as output continues its slow return from the damage dealt by Hurricane Ida,” said Christin Redmond, global commodity analyst at Schneider Electric, in a Tuesday note. 

“The remaining outages could be offline for an extended stretch though, headlined by Shell’s recent announcement that significant damage to infrastructure,” she said.

Royal Dutch Shell the Gulf’s largest producer, on Monday said damage to its WD-143 transfer facility won’t be fully repaired until the first quarter of next year.

The Energy Information Administration will release its weekly data on U.S. petroleum supplies Wednesday. Data from the American Petroleum Institute will be issued ahead of that, on Tuesday afternoon.

Forecasts for the EIA data vary following Hurricane Ida’s disruptions to Gulf of Mexico production, but analysts at IHS Markit expect the EIA to report a fall of 2.1 million barrels in domestic crude supplies for the week ended Sept. 17. They also forecast inventory declines of 400,000 barrels for gasoline and 1.3 million barrels for distillates.

On Nymex Tuesday, October gasoline shed nearly 1.8% to $2.08 a gallon and October heating oil lost 0.5% to $2.15 a gallon.

October natural gas traded at $4.79 per million British thermal units, down 3.9%.

Source: Marketwatch

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