Oil holds near 5-month high on US output cuts, inventories

Renewed worries about Covid-19 infections threaten further recovery in oil demand

LONDON:

Oil held near $46 a barrel on Wednesday, close to its highest since March, lifted by US producers shutting most of their offshore Gulf of Mexico output ahead of Hurricane Laura and a report showing a drop in US crude inventories.

Renewed worries over the Covid-19 pandemic, which has squeezed demand and sent prices to record lows in April, capped gains after reports this week of patients being re-infected, raising concerns about future immunity.

Brent crude slipped $0.14, or 0.3%, to $45.72 a barrel by 1050 GMT while US West Texas Intermediate crude fell $0.17, or 0.4%, to $43.18. Both benchmarks settled at a five-month high on Tuesday.

“Oil traders will be preoccupied with the hurricane today (Wednesday),” said Tamas Varga of broker PVM. “Once the danger passes, demand considerations will come into focus again.”

The US energy industry was preparing on Tuesday for a major hurricane strike. Producers shut 1.56 million barrels per day (bpd) of crude output, representing 84% of the Gulf of Mexico’s offshore production and close to the 90% outage that Hurricane Katrina brought 15 years ago.

“We do see some support on the back of hurricane activity,” Dutch bank ABN Amro said in a report. “The threat of being infected by the Covid-19 virus threatens a further recovery in oil demand.”

Oil was also boosted on Tuesday by US and Chinese officials reaffirming their commitment to a Phase 1 trade deal. Further support came from American Petroleum Institute (API) figures showing US crude stocks fell more than expected.

A record oil output cut by the Organisation of the Petroleum Exporting Countries (OPEC) and allies including Russia has helped to lift Brent from April’s 21-year low below $16.

The US government’s Energy Information Administration report at 1430 GMT will be in focus to see if it confirms the API figures.