Overnight rally in crude oil futures fades on profit-taking, but outlook remains bullish

0240 GMT: Crude oil futures were lower in mid-morning trade in Asia trade Sept. 24 amid profit-taking after an overnight rally, but the outlook remains bullish, market sources said.

At 10:40 am Singapore time (0240 GMT), the ICE November Brent futures contract was down 15 cents/b (0.19%) from the previous close at $77.10/b, while the NYMEX November light sweet crude contract was 20 cents/b (0.27%) lower at $73.10/b.

"There seems to be some profit-taking this morning. We will expect higher volatility in the coming day as crude is in a recalibration mode with an eye on the Europe gas crunch," Vandana Hari, CEO of Vanda Insights, said Sept. 24.

ANZ research analysts noted that Brent crude oil prices were still at a three-year high above $77/b and that a prolonged recovery from Hurricane Ida disruptions and robust demand were eating into oil stockpiles.

Other analysts shared similar sentiment, with IG market strategist Yeap Jun Rong saying that recent drawdowns in US crude inventories have added support in the oil market.

US oil supply remains tight in the wake of Hurricane Ida as operators in the US Gulf of Mexico struggle to return to full production. Around 294,214 b/d or 16.18% of total Gulf production remained shut-in as of Sept. 23, according to the Bureau of Safety and Environmental Enforcement. Despite the proportion of offline production easing from a week earlier, full recovery in the near term was unlikely due to damage to pipeline infrastructure.

Further support was coming from expectations of a spillover impact from higher gas prices as the natural gas market continues to trade at elevated levels amid supply tightness going into winter.

Analysts noted that contagion risks surrounding Chinese property developer Evergrande's financial woes were also being monitored.

"While there is some intervention from Chinese authorities with the injection of short-term funds into the economy, a wider knock-on impact may drive risks to economic growth," Yeap said.