Crude extends rally as demand outlook remains bullish amid supply constraint

Crude oil futures were higher in mid-morning trade in Asia trade Sept. 27 amid bullish demand outlook and supply tightness.

At 10:05 am Singapore time (0205 GMT), the ICE November Brent futures contract was up 1.14 cents/b (1.46%) from the previous close at $79.23/b, while the NYMEX November light sweet crude contract was 1.12 cents/b (1.51%) higher at $75.10/b.

"Supply tightness continues to draw on inventories across all regions," said ANZ research analysts on Sept. 27, adding that the rally in the natural gas price improved the price parity for oil to produce power, which is exerting upward pressure on oil.

Concerns remained over tightness in energy markets, particularly for natural gas, as the gas market continues to trade at elevated levels amid tight supply going into winter.

"These higher gas prices will lead to some gas to oil switching, which would be supportive of oil demand. This stronger demand coupled with supply losses in excess of 30 million barrels from the US Gulf of Mexico due to Hurricane Ida suggest a tighter than expected market," said ING market analysts in a note Sept. 27.

The US Bureau of Safety and Environmental Enforcement reported Sept. 23 that around 294,414 b/d, or 16.18%, of the Gulf's oil production remained offline post-Ida. Despite the proportion of offline production easing, full production recovery is not expected until early 2022, with Shell reporting extensive damage to its infrastructure.

Meanwhile, market watchers will track the OPEC+ meeting, which is scheduled to have on Oct. 4 to discuss about the strength in energy markets.

In the previous meeting on Sept. 1, OPEC+ alliance agreed to stick with its existing plan to release 400,000 bpd to the market in October.

ING market analysts said that in the current environment it seems almost certain that the group will continue to ease supply cuts, which should see them confirm at least a 400,000 b/d supply increase for November, however adding that they would not rule out OPEC+ deciding to ease by more than this amount, particularly if the current strength in the market persists.