OIL FUTURES: Crude higher in Europe as Hurricane Zeta locks in production

New York — Crude oil futures were higher day on day in European morning trading Oct. 27, but slightly down from levels in earlier Asian trading, with the market reflecting on lost production of both crude and products in the Gulf of Mexico as a result of Hurricane Zeta.

At 1214 GMT, the ICE December Brent crude futures was up 20 cents/b from the Oct. 26 settle at $40.65/b while the NYMEX December light sweet crude contract was 25 cents/b higher at $38.81/b.

The 27th named storm in this year's Atlantic hurricane season is expected to make landfall in the US on the morning of Oct. 28, the country's National Hurricane Center has said. BP, Equinor and Chevron were among those who'd suspended production at offshore oilfields in the gulf, while Shell said it hadn't done so. "We are likely to see further production shut in the coming days," ING wrote in a note.

The Bureau of Safety and Environmental Enforcement has said almost 294,000 b/d of production is shut in, which represents 16% of total production in the Gulf of Mexico. Zeta is expected to strengthen into a hurricane later on Oct. 26 and make an initial landfall near Mexico's Yucatan Peninsula before entering the central Gulf and making a second landfall as early as Oct. 28 near southeastern Louisiana, according to the hurricane center. The subsequent risk of refinery closures means that many market participants are prepared for this session's price rise to be reversed.

"The situation on the oil market remains confusing and ominous," wrote Commerzbank in a research note, drawing attention to possible demand destruction from "refinery closures and transport restrictions" that could be the next result of Hurricane Zeta.

Moreover, the growth of COVID-19 cases in Europe and the US means that traders are circumspect about any rise in crude prices, especially given the previously stated intention of OPEC+ to relax output cuts from January.

"If there is little improvement in the demand picture, there will likely be growing pressure on OPEC+ to rollover current cuts into next year," wrote ING.

With nine days remaining until the US presidential election, commodity, bond and equity markets are all examining possible policy changes in the world's biggest economy.

Commerzbank said a victory for Joe Biden could be both negative and positive for oil prices in the longer term. Among bearish signals for oil, Commerzbank named the Democrat candidate's commitment to alternative energy, as well his position toward Iran, which could pave the way for the major producer to be reintegrated into the oil market. However, decisive victory for the Democrats could also provide a boost to prices if it accelerated fiscal stimulus measures or if Biden restricts US shale oil.