Crude oil futures were higher during mid-morning Asian trade Sept. 21, as output in the US Gulf of Mexico continued to impact supply and tightness in the European gas market, which in turn is supporting oil prices.
Receive daily email alerts, subscriber notes & personalize your experience.Register Now
At 10:57 am Singapore time (0257 GMT), the ICE November Brent futures contract was up 62 cents/b (0.84%) from the previous close at $74.54/b, while the NYMEX October light sweet crude contract rose 64 cents/b (0.91%) to $70.93/b.
"Oil may draw some support in that some US Gulf outputs are still offline due to storm damages, with additional supplies to potentially come only in October," IG's market strategist Yeap Jun Rong said Sept. 21, adding that the $73.50/b level for Brent may remain as a key support to watch and a recovery from current levels may point to a higher low formed.
Analysts have also said that higher gas prices spurred by the tightness in the European gas market has offered support to the oil market.
"European natural gas prices continued to trade higher. Gazprom yesterday booked no additional pipeline capacity via Ukraine for October, while only around a third of the capacity offered via the Yamal-Europe pipeline was booked, which has intensified concerns over tightness," ING research analysts said Sept. 21.
The tight supply in the European gas market suggests that prices are likely to remain elevated. These higher gas prices should offer some support to the oil market, with a growing potential for gas to oil switching, they added.
Over at the US Gulf of Mexico, less than a quarter of crude production remain offline, nearly three weeks after Hurricane Ida ravaged the Louisiana Gulf Coast.
About 331,078 b/d of crude, or 18%, were still offline Sept. 20, according to the US Bureau of Safety and Environmental Enforcement, after Hurricane Ida shut in 95% of production at the end of August.
Despite the proportion of offline production on the decline, Shell has, however, pointed out that it will take some time to restore output to pre-Hurricane Ida levels. At the moment about 60% of the company's US offshore Gulf of Mexico output is back online. However, with serious damage sustained to a transfer facility, the remaining output is only expected to be fully restored Q1 2022.
In Washington, all eyes will be watching this week's US Federal Open Market Committee meeting over Sept. 21-22 closely for clues on the Federal Reserve's tapering of its bond buying program.
Last month, Fed chairman Jerome Powell signaled that it would be appropriate for the tapering to occur by the end of this year, which would buoy interest rates and strengthen the US dollar, putting downward pressure on energy prices.